Like any industry, the real estate market goes through countless ups and downs. Many of these changes are cyclical and are tied to the time of year; others, however, are more situational, such as the ones we’re experiencing right now. More exactly, changes to mortgage rate affordability and scarcity of homes for sale are having a major impact on the real estate industry. Let’s take a closer look.
The real estate market throughout the end of 2022 is certainly its fair share of upheaval thanks to recent economic developments, many of which are lingering effects of the coronavirus pandemic. Inflation has grown to near historic records, with the 12 months leading up to March 2022 seeing consumer prices up by 8.5 percent from the previous year.
The US Federal Bank responded by increasing interest rates several times to slow down inflation, but while this increases the rate of return on savings products, it also makes lending much more expensive. As a result, those seeking new mortgages now find that they’re no longer capable of qualifying for mortgages of the same amount as they were just a few short months ago. As the Fed is still considering increasing rates through March of 2023, this trend is likely to continue.
Yet even as it’s harder for some borrowers to secure mortgages today, the supply of available properties in the United States has yet to reflect that significantly. This indicates that people are still buying homes, though not necessarily at as high a rate as recently. Supply chain issues are hindering new construction, which means that supply is still low, which has been keeping home prices higher.
Yet while still it’s still well above last year’s levels, average real estate prices are not growing as quickly as they did last year. The median price for an existing home in August might have been up 7.7 percent year over year, but that rate is down from the 15.5 percent high from just May of 2022.
Based on all these factors, it’s likely to see the real estate market begin to stabilize going into 2023. While price increases are expected to continue to decline, albeit slowly, the relatively low supply will create additional competition for homes. The increased cost of securing a mortgage could also place some pressure downwards on home prices as fewer prospective buyers will be able to afford more higher-priced homes as well.