The trend of home prices softening has been going on for a while now, and it’s left many potential home buyers and sellers in a state of uncertainty about whether now really is the best time to buy or sell their homes. With mortgage rates still at historic lows, why aren’t people rushing to buy or sell? The answer may lie in the fact that housing inventory has been rising, but buyers are facing the problem of affordability.
The softer demand for properties from buyers contributed to the highest monthly drop in property values — estimated to be 0.3% from July. This has not happened since 2011.
Home Prices are Soft Because Rates are Going Up
In the past, typical mortgage payments had an astronomical growth of expenses to new buyers. The first expense of a mortgage was the interest rate. Interest rates on mortgages have increased considerably in recent years, which has been great for most people buying their first house.
The trend has changed since the outbreak of COVID-19, where monthly mortgage payment has increased from $897 to $1,643 from August 2019 to last month. This is an 83% increase since the pandemic hit the world.
Volatility has also impacted first-time home buyers to afford a loan. Weekly rate movement means people can afford a loan today, but next week they will not.
Buyers’ Pullback is Affecting Home Sellers
The housing market is continuing to cool off. With the reduced buying and rate hikes increasing, homes linger on the market for long periods, and sellers have to drop their prices to attract buyers or avoid listing. Potential home buyers and sellers continue to hesitate, which has caused prices to soften.
Affordability or Unaffordability is Driving Rebalancing
The housing market is still rebalancing after the economic downturn, but it’s unclear what direction that will take. Homeowners and potential buyers are still hesitant about purchasing a property because of economic uncertainty. The factors driving this trend vary from region to region, but affordability seems to be at the root of many problems.
The Rental Market Cooling Down Continues
In August, it showed ease in rent growth. The typical nationwide rent declined from 17.2% in February to 12.3% ($2,090) in August 2022. It only overlapped for-sale market trends. However, New York was among the front in rent growth.
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