Would-be buyers have struggled with historically low inventories, crazy bidding wars and now have to add rising mortgage rates to their worry list. Sellers on the other hand have been rejoicing as average housing prices continue to increase month-over-month and year-over-year, with average home prices jumping 15% in the last 12 months.
But sellers also face a dilemma: where do they go if they do in fact sell? And while there are signs that 2022 might see some cooling off, there are also signs that the relief will be too little – and maybe not at all in certain markets.
A rise in mortgage rates does impact borrowing costs and borrowing abilities and housing will absolutely feel the effect. By how much is anyone’s guess and more a function of location and supply.
On top of everyone’s mind is the fact that the average 30-year fixed-rate mortgage moved above 5% from 3% six months ago. But it’s worth noting that mortgage rates hit5% in 2011 and 2018 – and averaged over 7% from 1990 to 2010.
However, would-be-buyers tend to remember recent history and mortgage rates have been very low for a long time. In fact, mortgage rates have averaged 3.7% from2016-2021 and 3.0% over the last two years.
But think about this: The median existing-home pricfor all housing types in March was $375,300, up 15.0% from March 2021 ($326,300). This marks 121 consecutive months of year-over-year increases, the longest-running streak on record. That’s more than 12-years.
Intuitively, a rise in borrowing costs will take some of the frenzy out of housing market sales.And to underscore this point – although one month does not make a trend – we saw that the existing home sales were off 2.7% in March and mortgage applications are way down.
Here are a few more stats from the National Association of Realtors:
The good news for everyone? Well, housing costs represent a big part of inflation, and if home-price appreciation slows down even a little bit, so will inflation.
From a 1926 real estate classified ad in the ChicagoTribune: “Attention salesmen, sales managers: location, location, location, close to Rogers Park.”
The National Association expects that housing transactions will contract by 10% this year, home prices will readjust in 2022 and gains will be about 5%.
But housing – like your financial plan – is personal.Location, location, location.
Partner, Financial Planner
Mike enjoys getting to know and understand his clients and their needs. Mike guides clients through the financial planning process to help them identify their goals and create a plan to achieve them. His expertise is working with folks nearing retirement and young couples looking to save for retirement and plan for their children’s education. Mike retired from the Air Force in 2014 and went back to school as a non-traditional student at the University of Northern Iowa. He obtained a bachelor’s degree in accounting. Mike is a CERTIFIED FINANCIAL PLANNER™, and a member of the National Association of Personal Financial Advisors, XY Planning Network and Fee Only Network.
