Record-low mortgage rates and shortage of inventory are keeping the US housing market strong as far as demand is considered. Home prices have been surging month-over-month breaking new records. While affordability issues worsen, low mortgage rates, growing savings, and a strengthening job market combine to keep homeownership within reach for many potential buyers. But will the housing market eventually crash? Let's look at the most recent trends and housing market predictions for 2021 and 2022.
This year's housing market has been exceptionally strong, with strong housing demand in virtually every region of the country. In the midst of this pandemic, the housing market has emerged as a boon for sellers and a cause of concern for buyers. For several years, home prices have been growing in the mid-single digits. The recent price increases in the double digits reflect the confluence of extraordinary demand and persistently low supply. Prices are rising as there is plenty of capital on the sidelines, as well as very cheap mortgage rates.
A strengthening economy and millennials nearing their peak homebuying years are fueling a residential housing boom. Due to millennial homeownership and other reasons such as growing construction costs and real-estate investors scooping up starter houses, housing supply is presently at its lowest level since the 1970s. Low mortgage rates, combined with an increase in work-from-home opportunities as a result of the pandemic, have also fueled a surge in housing demand, particularly in lower-density suburbs.
We'll look at current real estate trends, price and rent hikes, housing sales and supply, mortgage rates and delinquencies, and other significant industry takeaways and insights into the US housing market.
What Happens Next in the Housing Market?
The FMHPI is an indicator for typical house price inflation in the United States. It indicates that home prices increased by 11.3 percent in the United States in 2020 as a result of robust housing demand and record low mortgage rates. Growth is expected to slow to 4.4 percent in 2022, according to the forecast. The current Freddie Mac House Price Index for United States is 245.2 (June 2021).
| 10-year Change in House Price Index: 100.5% |
| Annual Change in House Price Index: 20.11% |
| Quarterly Change in House Price Index: 5.96% |
| Monthly Change in House Price Index: 1.95% |
Pending home sales, a leading indicator of the health of the housing market, fell 1.8% in July, the second straight month of declines amid a record-breaking surge in housing prices. The National Association of Realtors’ (NAR) Pending Home Sales Index, which tracks the number of homes that are under contract to be sold, dropped 1.8% in July from the previous month. All four regions of the U.S. reported a year-over-year decline in pending home sales, which is an indicator of home sales that are likely to take place in one to two months.
The only region to post an increase in sales from a month ago was the West, where pending sales rose 1.9% in July from June. But sales in the West are down 5.7% compared to a year ago. Pending sales in the Northeast region recorded a 6.6% and 16.9% decrease — the largest monthly and year-over-year decline, respectively, since the data has been tracked. If home sales continue to fall, sellers may be forced to lower their prices and give buyers more time and flexibility when purchasing homes.
Realtor.com's national housing report for August 2021 indicates that the market is shifting favourably for homebuyers. Inventory appears to be increasing, and buyers who have been feeling the effects of buyer fatigue now have more options and purchasing leverage than they have had in the recent past. This year's market is beginning to show signs of a shift that may eventually result in a more balanced market in the second half of the year.
Home prices are now rising in the single digits, having passed their peak growth rates. These market trends point to a positive development for buyers as we enter the second half of this year. Median listing prices in several metro areas are continuing to fall, owing to an increase in lower-priced houses. New sellers are entering the market at near-normal levels, and while property prices remain high, they may need to consider pricing more competitively in the near future.
The nationwide median listing price for active listings in August was $380,000, up 8.6 percent from the previous year. The annual price growth rate has slowed for the fourth month in a row. The annual median home price growth rate in July was 10.3 percent, down from 12.7 percent in June. In comparison to previous year, large metros witnessed an average price increase of 3.5 percent. Price rise in the country's major metros is slowing somewhat quicker than in the rest of the country.
While median listing price growth is slowing, this does not represent a housing market crash. However, the share of homes with price reductions in August surpassed last year's level and is approaching 2016 to 2019 levels. 17.3 percent of active home listings had their prices reduced in August, up 0.7 percent year over year. While this is still within normal ranges, it may indicate that some sellers are adjusting prices more aggressively than they have in the last year and a half.
The decline in time-on-market has slowed but homes are still being picked up rapidly as demand remains high. The time a typical listing spends on the market is beginning to correspond to seasonal patterns. The typical home spent 39 days on the market this August, 17 days less than last year. As the number of newly listed properties is increasing, the sharp inventory losses of recent months have moderated. The net result has been a deceleration in the growth of listing prices. Due to scarcity and demand, real estate will still appreciate at a faster-than-average rate through late 2021.
CoreLogic, a data and analytics company, projects home price gains may slow over the next 12 months as demand moderates and for-sale inventory rises. The CoreLogic HPI Forecast indicates that home prices will increase by 3.2% from June 2021 to June 2022. The HPI Forecast also reveals the continued disparity in home price growth across metros. Home prices in markets such as Houston, which was badly impacted by the oil industry's collapse and the recent hurricane season, are anticipated to fall 0.9 percent by June 2022.
Credit to Marco Santarelli