9/25/2023 0 Comments Montana new home inventory amountIf the Housing Market Is Slowing, Should I Buy Now or Wait? ![]() “There could be slowness without a significant correction,” says Pettee. Borrowers haven’t stretched themselves financially the way they did a decade ago, and the overall macro environment continues to support healthy demand, he says. Like many other experts, Pettee isn’t concerned about a repeat of the subprime mortgage crash. If it stays in the mid-to-high 5%, “I think that’s a level the market can handle.” “If rates stay in the high 5s or low 6s, I think that’s an environment that’s going to be tough,” Pettee says. Most economists predict mortgage rates will bounce in the 5% to 6% range for the rest of the year and continue to weigh on home prices. The 30-year, fixed-rate mortgage soared to an average 5.81% in June, but has since retreated to 5.55% as of August 25, according to Freddie Mac. “What was kind of overlooked on the way up was the impact of lower rates.” The market is “so rates-driven” now, says Alex Pettee, the president of Hoya Capital Real Estate, which manages two real estate exchange-traded funds. It wasn’t until April, when rates exceeded 5% for the first time in 11 years, that shoppers really began worrying about the cost of mortgage rates again. ![]() Mortgage rates have long taken a back seat in terms of the other major costs of buying a home because the average 30-year, fixed-rate mortgage stayed below 4% from mid-2019 through March this year. “I think about how dramatic this moment is, how sharp the changes.” How Mortgage Rates Stalled the Hot Housing Market “We’re moving into a major transition period,” Olsen says. The global pandemic pushed borrowing costs to rock-bottom levels-only to have them rapidly reverse course as home prices reached record levels. However, Olsen cautions that there has rarely been a more challenging moment at which to model price changes. Cities Projected To Have Largest Declines in Home Values Through July 2023 Prices in oil towns are also expected to pull back: The model shows Shreveport, Louisiana, and Odessa, Texas, with 3.3% declines. Zillow’s forecast calls for home values in San Jose, California, to drop 3.6%, and those in San Francisco to dip 1.8% by next July. But “there are going to be markets that experience pullback.”Īs home values decline, prices will likely follow, since people prefer to pay at or below what a house is worth.Īreas that have seen some of the biggest gains in valuations are among those expected to register declines over the next year. “At a national level, that strong long-run trend is reverting back to a mean,” Olsen says. Zillow is forecasting the annual growth in home values to drop from the current rate of 16% to 2.4% during the next 12 months-and some parts of the country will see actual declines in home values. ![]() That’s exactly how Skylar Olsen, chief economist at Zillow, portrays the current moment. And while what goes up in markets doesn’t always come down, it usually does revert to the mean. The housing market in the past two years has been among the frothiest in ages. “Unfortunately that’s just the way the world works.” Why Home Prices Are Likely To Drop But at the end of the day, it’s only worth what someone else thinks it’s worth,” Riley says, acknowledging home prices are likely to decline. You can have the greatest, best Realtor in the world tell you what they think it’s worth. The typical mortgage payment in July was more than 50% higher than it was just a year ago, according to the National Association of Realtors.Īnd this leads to the “strange” market Riley is referring to-many buyers are financially tapped out of the market, but sellers (and their agents) are still looking at comparable sales from the height of the market just a few months back and believing they can fetch the same now. Sellers and their real estate agents got used to nearly two years of fetching top-dollar on homes as buyers were willing to spend almost anything to win against multiple bids during the tightest housing inventory market in history.īut that appetite took a turn when mortgage rates shot up this year, reaching as high as 5.81% in late June-nearly double the average from a year ago, according to Freddie Mac. Having worked through all kinds of real estate cycles, Riley says the current cycle is the “strangest” she’s seen. Riley stuck it out after the housing crash 15 years ago, and she now runs Better Homes and Gardens Real Estate Prosperity in Rochester as the broker-owner.
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