Higher Rates and Short Supply: The State of Real Estate in 2022

Wednesday, June 1, 2022   /   by Maria Ange

Higher Rates and Short Supply: The State of Real Estate in 2022

The last two years caught many of us off guard—and not just because of the pandemic. They

also ushered in the hottest housing market on record, with home prices rising nationally by

nearly 19% in 2021, driven primarily by low mortgage rates and a major supply shortage. 1

But while some had hoped 2022 would bring a return to normalcy, the U.S. real estate market

continues to boom, despite rising interest rates and decreasing affordability.

So what’s driving this persistent demand? And is there an end in sight?

Here are three factors impacting the real estate market right now. Find out how they could affect

you if you’re a current homeowner or plan to buy or sell a home this year.


MORTGAGE RATES ARE RISING FASTER THAN EXPECTED

Over the past couple of years, homebuyers have faced intense competition for new homes—in

part due to historically low mortgage rates that were a result of the Federal Reserve’s efforts to

keep the economy afloat during the COVID-19 pandemic.

However, in response to a concerning level of inflation, the Fed is now reversing those efforts by

raising the federal funds rate. And as a result, mortgage rates are rising, as well. Few experts

predicted, though, that mortgage rates would go up as quickly as they have.

In January 2022, the Mortgage Bankers Association projected that rates would reach 4% by the

end of this year. 2 By mid-April, however, the average 30-year fixed mortgage rate had already

hit 5%, up from around 3% just one year prior. 3 On a $400,000 mortgage, that 2% difference

could translate into an additional $461 per monthly payment.

Since then, mortgage rates have continued on an upward trend. So what impact are these rising

rates having on demand? While many buyers had hoped for a cooling effect, experts warn that

may not be the case.

Ali Wolf, chief economist at housing market research firm Zanda, told Fortune magazine, "Rising

mortgage rates are having a counterintuitive effect on the housing market. Home shoppers are

actually sprung into action in an attempt to buy a home before mortgage rates rise any higher." 4

Since inventory remains low, the resulting “race” has kept the homebuying market highly

competitive–at least for now.

What does it mean for you?


While current 30-year fixed mortgage rates represent an increase over previous months, they

remain well below the historical average of 8%. 5 As inflation across the economy continues, the

Fed is likely to raise rates further this year. Buyers should act fast to secure a good mortgage

rate. We’d be happy to refer you to a lender who can help.

What Is Your Home Worth

For sellers, speed is also of the essence. The pool of potential buyers may shrink as mortgages

become more expensive. And if you plan to finance your next home, you’ll want to act quickly to

secure a favorable rate for yourself. Contact us today to discuss your options.


HOME PRICES KEEP CLIMBING

History shows that higher interest rates don’t necessarily translate to lower home prices. In fact,

home prices rose 5% between 1980 and 1982, a period of significantly higher mortgage rates

and inflation. 5

Forecasters expect that home prices will continue to go up throughout 2022, though likely at a

slower pace than the 18.8% increase of the last 12 months. 4 Bank of America predicts that

prices will be up approximately 10% by the end of this year, while Fannie Mae estimates

11.2%. 6,7

In addition to limited supply and a race to beat rising mortgage rates, home values are also

climbing because of positive economic indicators, like low unemployment. 8 Plus, rents are

soaring–up 17% from a year ago–which is prompting more first-time homebuyers to enter the

market. 9 Add to that the continued popularity of remote work, and it’s easy to see why property

prices continue to surge.

However, it’s not all bad news for prospective homebuyers. Economists expect that as

mortgage rates rise, the rate of appreciation will continue to taper, though the effect may be

gradual.

“Eventually mortgage rates will slow down home prices,” according to Ken Johnson, an

economist at Florida Atlantic University interviewed by Marketwatch. 10 “We should not see rapid

upticks in prices as mortgage rates rise.” Forecasters agree—Fannie Mae expects price

increases to slow to 4.2% in 2023. 7

What does it mean for you?

While the pace of appreciation is likely to decrease next year, home prices show no signs of

going down. However, current labor shortages are leading to higher salaries and better job

opportunities for many workers. You may find that your income growth outpaces home prices,

making homeownership more affordable for you in the future.


For homeowners, the outlook’s even brighter. You could find yourself sitting on a nice pile of

equity. Contact us for a free home value assessment to find out.


INVENTORY REMAINS EXTREMELY LOW

As noted, one of the largest hurdles to homeownership is a lack of inventory. According to a

February 2022 report by Realtor.com, there’s an expanding gap between household formation

and home construction, which has resulted in a nationwide shortage of 5.8 million housing

units. 11

The origins of this shortage date back to the 2008 housing crisis, during which crashing home

values led contractors to stop building new properties—a trend that has not been fully

reversed. 12

That decline in home construction also resulted in a decrease in the number of home building

professionals, a trend that was exacerbated by job losses during the COVID-19 pandemic. Now,

many builders are limited by their ability to find qualified labor.

Another major challenge is a staggering increase in the cost of materials. Pandemic-related

supply chain shortages have been a significant driver, with home building material costs rising

on average 20% on a year-over-year basis. The price of framing lumber alone has tripled since

August 2021. 13

These trends add tens of thousands of dollars to the cost of a typical home. Factors like a lack

of buildable land in many areas, restrictive zoning, and a shortage of developers are also

contributing to the issue. 14

Most homebuying experts agree that the lack of inventory is the primary factor driving rising

housing prices and unprecedented competition for homes. With available housing units near

four-decade lows, the end of the current housing boom is not yet in sight. 15

What does it mean for you?

Prospective buyers should be prepared to compete for a home, since low inventory can lead to

multiple offers. You may also need to expand your search parameters. If you’re ready to look,

we’re ready to help.

For sellers, the picture is rosier. In this strong market, your home may be worth more than you

realize. Contact us to find out how much your home could sell for in today’s market.


WE’RE HERE TO GUIDE YOU


While national real estate trends can provide a “big picture” outlook, real estate is local. And as

local market experts, we can guide you through the ins and outs of our market and the local

issues that are likely to drive home values in your particular neighborhood.

If you’re considering buying or selling a home, contact us now to schedule a free consultation.

We can help you assess your options and make the most of this unique real estate landscape.


Sources:

1. Marketwatch - https://www.marketwatch.com/picks/home-price-appreciation-will-normalize-what-5-

economists-and-real-estate-pros-predict-will-happen-to-home-prices-in-2022-01646940841

2. Bankrate -

https://www.bankrate.com/mortgages/mortgage-rate-forecast

3. CNBC -

https://www.cnbc.com/2022/04/16/heres-how-much-the-same-mortgage-costs-now-compared-to-last-

year.html

4. Fortune -

https://fortune.com/2022/03/23/housing-market-interest-rate-economic-shock/

5. National Association of Realtors -

https://www.nar.realtor/blogs/economists-outlook/instant-reaction-mortgage-rates-april-07-2022

6. Fortune -

https://fortune.com/2022/03/16/home-prices-2022-2023-bank-of-america-forecast-mortgage-rates/

7. Fortune -

https://fortune.com/2022/03/07/what-home-prices-will-look-like-2023-fannie-mae/

8. Fortune -

https://fortune.com/2022/03/17/home-prices-drop-housing-markets-california-michigan-massachusetts-

corelogic/

9. CNN -

https://www.cnn.com/2022/03/23/success/us-national-rent-february/index.html

10. MarketWatch -

https://www.marketwatch.com/story/home-prices-increase-at-one-of-the-fastest-rates-on-record-but-higher-

mortgage-rates-should-slow-future-growth-11648559497

11. Realtor.com -

https://www.realtor.com/research/us-housing-supply-gap-expands/

12. NPR -

https://www.npr.org/2022/03/29/1089174630/housing-shortage-new-home-construction-supply-chain

13. Investopedia -

https://www.investopedia.com/housing-market-dips-in-early-march-2022-5222449

14. NPR -

https://www.npr.org/2022/03/29/1089174630/housing-shortage-new-home-construction-supply-chain

15. Fortune -

https://fortune.com/2022/03/14/housing-market-key-metric-inventory-zillow-bad-for-buyers/

  home ownership

Keller Williams
Heather Smith
1001 Military Cutoff Rd
Wilmington, NC 28405

Copyright 2022 NCRMLS. All rights reserved. North Carolina Regional Multiple Listing Service, (NCRMLS), provides content displayed here (“provided content”) on an “as is” basis and makes no representations or warranties regarding the provided content, including, but not limited to those of non-infringement, timeliness, accuracy, or completeness. Individuals and companies using information presented are responsible for verification and validation of information they utilize and present to their customers and clients. NCRMLS will not be liable for any damage or loss resulting from use of the provided content or the products available through Portals, IDX, VOW, and/or Syndication. Recipients of this information shall not resell, redistribute, reproduce, modify, or otherwise copy any portion thereof without the expressed written consent of NCRMLS.
This site powered by CINC: www.cincpro.com