Three signals of the housing market that are worth watching

Clare Losey
Real estate markets provide clues as to where they can go, so real estate professionals need to pay attention to them, especially in times of persistent fluctuations, transitions or uncertainties. Here are three indicators that are particularly worth monitoring in the coming months.

High appreciation of house prices
It is no secret that house prices have risen sharply since the end of the Great Recession. From July 2009 to February 2020, the national home price appreciation averaged 3.1 percent, as reflected by the US National Home Price Index S & P / Case-Shiller. As the COVID-19 pandemic progressed, recovery accelerated rapidly and reached double-digit territory by the end of 2020. In August 2021, it measured an incredible 19.9 percent. While such house price growth is unsustainable in the long run, it raises a number of concerns about housing affordability.
For potential home buyers, higher home prices without accompanying income and wage growth reduce the potential for home buying. This is especially true for low-income people and first-time buyers who are less likely to be eligible for higher-priced home mortgage financing.
In addition, the high appreciation of house prices is generally reflected in the consequent increase in valued values. This means that existing homeowners can expect to spend more on the additional costs associated with owning a home, including property tax and insurance.
Inflation and supply-side constraints
Inflation undermines the potential to buy a home in two ways: by reducing the buyer’s purchasing power and by increasing the cost of building materials such as lumber, which ultimately increases home prices.
Although economists expect inflation to fall in the near future (probably sometime in mid-late 2022), they will continue to be concerned about supply-side constraints. The housing industry continues to face a number of challenges in locating new homes, including a lack of buildable land, regulations and zones, and rising building material and labor costs.
These challenges limit the number of new homes that can be added each year, thereby reducing the overall inventory of homes on the market.
Potential for higher mortgage rates
After the end of the Great Recession in July 2009, mortgage rates were largely between 3 and 5 percent. As a result of the COVID-19 pandemic, historical lows fell below 3 percent. Rates have risen slightly since then, with Freddie Mac measuring 3.09 percent in the week of Oct. 21. Lower mortgage rates mean lower borrowing costs for home buyers, which reduces monthly mortgage payments. This means that buyers spend less on the house for the same price.
However, as the Federal Reserve adopts measures to reduce inflation, including reductions in monthly bond purchases, most economists expect an accompanying rise in mortgage rates. The National Association of Realtors predicts that rates will reach 3.5 percent by mid-2022. This means that the mortgage payment for a $ 200,000 house will increase from $ 674.57 at an interest rate of 3 percent to $ 718.47 at an interest rate 3.5 percent (assuming a 30-year fixed rate mortgage and 80% loan-to-value ratio). While such a slight increase will primarily reduce the ability marginal Buyers (as opposed to the average buyer) in order to buy a home may experience a decline in affordability greater than it actually is, potentially dampening overall demand.
David Berry

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