HOW LONG WILL PRICES STAY HIGH?

HOW LONG WILL PRICES STAY HIGH?

Coastal Pacific Lending, Inc.
Coastal Pacific Lending, Inc.
Published on October 17, 2022

HOW LONG WILL PRICES STAY HIGH?

MORE ARE PLANNING TO BUY IN 2021

Verify my mortgage eligibility (Dec 1st, 2022)

EDIT – 10/17/2022: Due to the interest rate environment, we are seeing affordability become slightly worse in combination with still high home prices. although pricing is expected to reduce slightly in the coming year, buyers have a strong position now. Fannie mae expects for interest rates to fall to a recent average of 4% by q2 2023, if you are able to buy a home now, you may be able to negotiate a better deal with higher interest rates, and refinance in early 2023. EDIT: FNMA is estimating that each month fewer than 1 million homes become available for purchase, and there are more than 1.5 Million prospective home buyers each month, They estimate, based on demand trends, to keep up with demand, builders will need to construct 1.6 Million homes/month, to keep up with lack of inventory. This further corroborates the Forbes predictions.

EDIT – 10/11/2021: We beginning to see the effects of the COVID-19 Recovery, that is more houses are being offered and sold and home pricing is beginning to level off, Home prices are in a good spot in combination with where interest rates are and it’s a good time to start looking if you have plans to purchase by the end of the year.  

With much of 2020 made a mess by the COVID-19 pandemic, there were a few bright spots, noticeably, the spike in real estate price. After a brief period of decline occasioned by the onset of the COVID-19, low mortgage rates and relocations made possible by remote work resulted in an increased demand for residential properties. This surge in demand meant an increased valuation of properties, creating more wealth for homeowners.

Verify my mortgage eligibility (Dec 1st, 2022)
Home Prices are Starting to level, when should you sell or buy?

2021 has shown signs of continuing with the upward trend, with experts predicting another strong year for the housing market. According to Forbes, it’s expected that home prices will increase no less than 13.4% and up to 25%. This increase in the value of properties is expected to be driven by:

  • Increased demand from buyers who delayed purchasing because of the pandemic.
  • Condo owners are seeking to escape multifamily buildings for single-family houses to reduce exposure to the virus.
  • Allowed to work from home indefinitely
  • Pent up demand due to Covid restrictions
  • Work from home lifestyle changes
  • Migration from suburbs to rural
  • An all-time low-interest rate
  • Low inventory

CAN WE EXPECT MORE HOMES TO GET LISTED?

Each month, the gap between the number of homes sold and the number of new listings widens, so more often than not, the odds favor home sellers. According to data from experts, unless more homeowners decide to list their homes for sale, available housing inventory is expected to remain low.

Verify my mortgage eligibility (Dec 1st, 2022)

For example, compared to 2019, 2020 witnessed a 0.22% increase in the number of homes listed, with total sales increasing by as much as 19.29%.

Therefore though it sounds like the obvious thing to say, now is the best time to get your home listed for sale.

RATES WILL RULE THE MARKET STILL 

Verify my mortgage eligibility (Dec 1st, 2022)

Whether sales price is more important than the interest rate depends on your perspective, but in 2021, interest rates will prove to be more important. In mid-2019, the interest rate for properties hovered around 4.5%, but in 2021, it’s expected to fall to 2.5%.

While you can’t always predict fluctuations in the market, you can observe them and learn patterns. As a rule of thumb, when interest rates go down, sales prices move up to compensate. This has stayed true over the years, although there have been a few exceptions. An example of how interest rates influence the price of properties can be seen in the scenario below:

Say you’re comparing a home in Phoenix worth $250,000 and purchased at a fixed interest rate of 4.5% purchased in 2019 with a house purchased at $250,000 with a 2.5% interest rate. Mortgage for both houses is spread over 30 years paid monthly.

Verify my mortgage eligibility (Dec 1st, 2022)

See how they compare:

Mid 2019 Range: 4.5 % on a 30 year fixed, $250,000 loan

  • Monthly payment: $1,266
  • Total Interest Paid: $206,017
  • Total Paid: $456,017

Current Range: 2.5% on a 30 year fixed, $250,000 loan

Verify my mortgage eligibility (Dec 1st, 2022)
  • Monthly payment: $924
  • Total Interest Paid: $82,657
  • Total Paid: $332,657

$123,360 4.5% savings by the rate in the example above.

If we decide to take it one step further and increase the loan amount to $300,000 and $370,000, respectively, we get:

Home purchased in 2019 for $300,000 with $50,000 down payment and 4.5% rate

Verify my mortgage eligibility (Dec 1st, 2022)
  • Monthly payment: $1,266

Current Value $370K with 50K down and 2.5% rate

  • Monthly payment: $1,264
  • Total Interest Paid: $135,179
  • Total Paid: $455,179

IS THE HOUSING MARKET GOING TO CRASH IN 2021?

It’s unlikely that the housing market will crash within the next three years at least. Remember, experts predict that home prices will increase by 13.4% and up to 25%. With new buyers continuing to enter the market and not enough homes for sale to meet demand, home sales and prices are expected to go up still.

Verify my mortgage eligibility (Dec 1st, 2022)

On the other hand, if the number of houses for sale becomes crazy high, and the number of buyers willing to buy them suddenly plummet, home prices would fall, and then we can begin to fear a crash.

THE BOTTOM LINE

With so much uncertainty affecting the economy, the job market, and our daily lives, it can feel incredibly difficult to plan for the future. However, with expert forecasts and market patterns, you can expect an incredible seller’s market in 2021, making it a great time to list your home, especially if you reside in the suburbs.

Verify my mortgage eligibility (Dec 1st, 2022)

We can also expect a decrease in rented units, which might incentivize landlords to offer lower prices and better deals. Therefore, take advantage of these opportunities to shop for affordable office spaces or housing closer to the city.

Lastly, although 2020 was tumultuous and 2021 may seem daunting, it’s important to keep in mind that the housing market is leading our economy toward recovery, and we shouldn’t expect an oncoming market crash. The housing market is known for being difficult to predict; therefore, you must have an expert in your corner. To connect with agents that can weather real estate storms, you can try our services at Coastal Pacific Lending.

Show me today's rates (Dec 1st, 2022)
Coastal Pacific Lending, Inc.
Coastal Pacific Lending, Inc.
Click to Call or Text:
(888) 214-8618

This entry has 0 replies

Comments are closed.