Many have been holding out hope for the recent market boom to cool down. Some have even began to notice shifts in the market including an increase in inventory and some listings even seeing price drops. For one real estate expert, however, the belief is that home prices will continue to rise at or near double digits in 2022.
According to Fortune, this expert is Ed Pinto. He is the director of the American Enterprise Institute’s Housing Center and former chief credit officer at Fannie Mae. He is known for collecting data and making what usually turn out to be accurate predictions. Much of his data comes from newly issued mortgages to show him what might be in store for the future of home prices. Pinto is sure based on his data the narrative that the market is cooling off is false.
What does the data show?
Pinto believes that the data we are currently seeing is just typical seasonality. A majority of families want to move into their new homes before the beginning of the next school year. This is why June is usually peak season for purchases. Buyers who seek out pre-approval rate locks always follow the same season pattern. These numbers start decreasing through the summer and into the end of the year. Despite this, all months this year are still well above 2019 numbers. And 2019 was a really strong year in real estate. The amount of home purchases is not actually declining as much as it’s typically expected this time of the year.
Even more telling is that the buying volume is sustaining the high prices of homes even as mortgage rates increase. Pinto believes that there are multiple aspects that will keep the housing market hot in most areas. First, mortgage rates, while up from a few months ago, are still low overall in comparison to previous years. Next, government-sponsored agencies are loosening standards and raising their affordable housing goals. Third, inventory is still overall very low. A six month inventory equates to a balanced market and the current average in the US is around six weeks. Last, is the work from home shift that has come out of the pandemic. As many people no longer need to commute to a workplace, a number of employees are finding themselves with urban, big city paychecks who don’t need to live in the city. They have immense power to buy something larger in more suburban or rural areas. This is why areas that previously offered better home prices than the expensive cities have seen larger jumps in housing costs.
When will the housing boom end?
According to Pinto, there are two possible things that may happen with the housing boom. Mortgage rates could make a comeback to 4.5% or more which would slow down the appreciation rate. This would especially be felt in expensive areas like New York and San Francisco. When this happens, demand tends to move towards the middle. Therefore, demand could continue to be high in those areas. In his other scenario, rates remain low (3%-4% range) and gains will be around 13%-15%. By summer, appreciation will still be in double digits. This is a similar projection to the Home Price Expectation Survey which showed equity levels rising to an estimate 31.8% over the next five years.
Pinto says he doesn’t see prices normalizing for a long time, but the boom will eventually create an affordability problem. As this happens, it will turn off prospective buyers. With less buyers in the market, prices will have to eventually correct themselves. Those days might be far off from now though.
With all the recent data and predictions of the housing market, buying sooner rather than later may be the better option. If you want to purchase a home this year, let’s connect so you have an ally to help you navigate the process. Our Moving to Orlando REALTORS are here to help you prepare for your home purchase. Take a moment to fill out our contact form, and someone will be in contact with you!