Housing Market Trends October 2022 | Residential Snapshot

Last Updated on September 30, 2022 by Luke Feldbrugge

Welcome to the Housing Market Trends October 2022 monthly update from Homes for Heroes. This report focuses on the residential real estate housing market. We listen to the experts and boil down what they have to say to assist you, our heroes, with decision making regarding buying a home, selling your home, or refinancing your mortgage.

Housing Market Trends for October: Buyers’ Market?

Welcome to the buyers’ market. Ok, that might be a little premature, but the real estate economy as a whole is shifting its conversation away from sellers and toward home buyers. It had to happen, of course. The last few years of real estate transactions has shown a bull market for sellers that was unprecedented. Asking prices were completely ignored as sellers received multiple offers way above the asking prices. If you weren’t on the front lines of the real estate bidding wars, you at least heard some of the stories.

That couldn’t last and, of course, and it hasn’t. As the pendulum swings back, we are seeing more numbers that favor first-time homebuyers. These should give some buyers more encouragement in their search and may give other potential buyers reasons to re-enter the house hunt.

First the bad news. Interest rates on mortgages are going up. We hoped they had hit a plateau in July, but the Federal Reserve keeps raising the rates in an attempt to slow inflation.

“Projections from the meeting indicated that the Fed expects to raise rates by at least 1.25 percentage points in its two remaining meetings this year… ‘The FOMC (Federal Open Market Committee) is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done.’” –Chairman Powell, CNBC, Sept. 21, 2022

The rate that the Federal Reserve sets doesn’t strictly dictate what mortgage rates will be, but they are strongly correlated. If one goes up, generally, so does the other. Earlier this year, experts hoped that higher mortgage rates would flatten out, but now they are looking for that next year.

Mortgage rate projections table Q4 2022 Q3 2023 shows freddie mac fannie mae mba nar average 4 projected august 2022 Keeping Current Matters

Now the good news. The real estate market is settling down to pre-pandemic levels from its roller coaster volatility of the past 2-3 years. Words like “predictability” and “stabilize” are peppering the forecasts of real estate experts.

Let the Buyer Be Aware

Rising mortgage interest rates will, and do, discourage buyers, but that’s not the whole story. Buying a house is a complicated mix of factors that include:

  • Financial elements
  • Emotional factors
  • Intelligent reasoning
  • FOMO

Let’s look at some financials besides the increasing interest rates. First off, fewer homes are getting scooped up right away, so the inventory of homes has been rising all year. More housing supply is good for buyers. It means more opportunities to find a home you love. Overall, there are fewer number of homes being sold than in January, so you may have less competition for houses than the past year.

Housing inventory still low comp bar graph 2019-2021 Week Ending Sept 2 Keeping Current Matters

Second, U.S. home price increases are decelerating, meaning they are still rising but not as fast as they did at the beginning of the year or the previous year. Again, the market returning to normal is good for prospective buyers.

Thirdly, on a macro level, the middle class has been making some real gains economically in the past couple of years. If you never thought that would happen, check out the headline from the New York Times on Sept. 26, 2022: “Factory Jobs Are Booming Like It’s the 1970s”

In the report, American manufacturers have regained all the jobs lost during the pandemic and also added 67,000 more factory jobs. In that same time, the real net worth of the bottom half of United States households climbed 60% to $67,524.

Housing Market Trends in October – Deceleration is not Depreciation

On the seller side of the equation, the news is still positive if not exuberant. Even though the discussion is shifting, there is still more demand than there are available houses. The limited supply of homes means home sellers still have an advantage in negotiations. And although inventory is up, it’s still below traditional levels.

The brunt of the conversation for sellers is the question: “Are U.S. home prices dropping?” They want to know if the value of their property is decreasing. The reason they are asking that question is because so many news stories include some variation of “housing prices dropping” in the headline. These headlines are misleading and designed to scare people into reading the rest of the story.

If you dig into these stories, what they are really talking about is that national home prices aren’t increasing as fast as they were (how could they). Slowing down does not mean stopping–nor does it mean going into reverse. A slow down is just a slow down. If your house increased in value over the past two years, it has retained that value.

This is what the experts call a deceleration but not a depreciation. That’s important. It means that housing values are still appreciating–this time at more traditional rates. At the beginning of the year the home price appreciation was at 20%. In July of this year, appreciation was 15% higher than last year. Housing market predictions are that by July of next year, it will be at the traditional level of 3.8%. We all remember the price drops of the Great Recession, but we are not returning to that.

“Annual home price growth slowed for the third consecutive month in July but remained elevated at 15.8%. As 30-year, fixed-rate mortgages neared 6% this summer, some prospective homebuyers pulled back, helping ease overheated and unsustainable price growth.” –CoreLogic

January-July 2022 percent YOY home price increases shows appreciation slowing not depreciation Source Corelogic Keeping Current Matters

There are some exceptions to the “deceleration not depreciation” claim. In some parts of the country where housing prices skyrocketed during the pandemic, prices are coming down. As Mark Zandi, Chief Economist for Moody’s Analytics, said, “I don’t think national housing prices will decline in a meaningful way . . . but there will be some price declines across the country.”

If you are wondering where price reductions may occur, check out this map of areas of the country where property values are dropping.

Sellers are also going to need to shift their attitude about the listing price of their houses. The boom’s high prices trained sellers, and their real estate agents, to think of the list price as the floor of the negotiation, in effect the opening bid. People would begin their offers and negotiations at the base listing price and go up from there. Traditionally, however, the asking price was more of a ceiling for the negotiations, and that’s what we are returning to as buyers have more options and a little more buying power.

In the wake of alarming headlines about interest rates and inflation and recession, it’s important to remember how real estate interacts with the larger economy.

“Housing is traditionally one of the first sectors to slow as the economy shifts but is also one of the first to rebound.” Ali Wolf, Chief Economist, Zonda

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