With the continuous headlines of rising interest rates, fears of a recession and worst of all, is your house going to depreciate? It’s easy to feel like the U.S. is acting out a 2022 version of the Monster Mash.
But this is not 2008 and all ‘treats’ are not lost. As great as it’s been for homeowners in the last few years– houses appreciating at 20% on a yearly average and 3% mortgage rates are not sustainable. The market is beginning to normalize and that’s exactly what we're seeing. Housing inventory is up 156.6% (compared to 2021) and home prices are cooling off across the map. While some economists predict home price growth turning negative on a year-over-year basis, this will vary heavily from area to area. Fannie Mae predicts home price growth will turn negative in the second quarter of 2023. However, Fannie also predicts the fourth quarter of 2022 will show a 9% national home price growth from the same period in 2021.
But there’s no need to fret, despite the jump in interest rates they are still on par with historical averages. Between 1971 and 2022, the average rate for a 30-year fixed rate is 7.76%. While a higher interest rate does increase the cost of a mortgage, the rise in rates has brought positives.
Over the last few years, we’ve seen bidding wars like never before, buyers waiving inspections and having to offer way more than the asking price. With houses for sale sitting on the market for longer and home inventory improving, today’s homebuyers have more options than they’ve had in nearly three years. In the third quarter of 2022, the average time a listing spent on the market averaged 15 days. That’s a 50% increase compared to the third quarter of 2021. With cash buyers, home prices and sales flying through the roof, many first-time homebuyers struggled to get an offer submitted much less accepted before the opportunity was missed. Now, buyers have more options and most importantly more time to decide on what may be the largest purchase of their lifetime.
Land and time are two things we can’t make more of. While interest rates may lower in the next few years, the homes you can buy today will likely appreciate. Historically speaking, the cost of housing isn’t getting any cheaper. If you plan to live in the same area for five years or more, it makes financial sense to purchase a home. Let’s not forget the cost of renting is also increasing, the average rent for a studio apartment in Atlanta is $1,727. The sooner you buy a home the sooner you can begin building equity. And when rates lower, there's always the option to refinance.
The housing market is cyclical, and this is the next phase of the cycle as we slowly move toward a buyer's market. The reality is the housing market is simply getting back to normal. There were a lot of historical records made last year, but now the market looks completely different and that’s okay. The numbers are going to look skewed compared to the last two years. Don’t let the clickbait trick you, give yourself (and your mind) a treat with the important context needed when thinking about the housing market.
If interest rates are still haunting you or you’d like to discuss purchasing a home please don’t hesitate to reach out to the team.