PRESIDENT'S CORNER: A Changing Market
Anthony Domathoti | July 20, 2022
July is here and we are well into the summer market.
Change is constant and as we evolve, we join forces, and share resources through this post pandemic times. Inflation is hurting every household budget and it is likely to hurt the nation’s budget, too. The Federal Reserve’s interest rate hikes, meant to counteract inflation, have already raised rates on the basket of federal government bonds by 1.9 percentage points.
Higher mortgage rates, which climbed past 6% recently, are likely to eventually curb the relentless escalation of home prices. Rising interest rates have shifted the foundation of the economy as well as the housing market. But, their most immediate impact will be to force many buyers to put their dreams on hold as the cost of homeownership slips out of their financial reach.
Housing is a leading sector of the economy. It will typically decline before the rest of the economy, and we’re seeing evidence of that now. It’s going to be the first one to show weakness, and it’s going to be the first sector to show a rebound.
Home prices and mortgage rates will continue to rise, home sales will drop as buyers are priced out of homeownership, and the housing market will continue to cool. However, first-time home buyers do have an uphill climb. New residential buyers are practically priced out of the housing market depending on their finances and debt-to-income ratio. On the other hand, a refreshing bright spot for frustrated homebuyers is that the number of homes on the market is expected to shoot up.
Despite the housing market challenges, 2022 could be a good year to purchase a home.
The good news is as interest rates rise, home valuations begin to stabilize. Inventory will eventually grow, a development that typically makes it easier to buy a home. All factors indicate the market will shift into a more positive climate for house hunters or become a ‘buyer’s market’—sooner or later.
Homebuyers have been struggling in a strong seller’s market for the past couple of years. We are noticing the days of multiple offers are over. Buyers, once again, can negotiate a better price.
So, what can you do to minimize the effects of an increase in interest rates? Make sure your credit is squeaky clean. Shop around for your mortgage and consider alternative mortgage programs. Find an infusion of cash to lower your loan amount. Adjust your expectations regarding size and location of your prospective home since any increase in rates will affect everything from entry-level condos to luxury properties. Still, with the Fed anticipating raising rates in small increments through 2023, this may still be the optimum time to buy.
After reviewing the trends and forecasts for the remainder of the year, house hunters should see a normalization in the housing market soon. Demand will continue to decrease, making way for the inventory to recover and eventually increase. As a result, the best time to find a home may be now and into the fall.
As Realtors, lets us renew our commitment to uphold our fiduciary responsibilities. I urge you to take charge of your business, no matter what is happening in your marketplace. Remember, negativity is contagious and a negative attitude is highly contagious, it’s debilitating, and it will keep you from doing business. Are you willing to do what it takes to win in today’s market rather than lose?
“Everything will be okay in the end. If it isn’t okay, it isn’t the end.” —Paulo Coelho