The real estate market has been red hot throughout the last couple years. With home prices skyrocketing and record breaking sales, buying a home felt impossible for many buyers. Is this housing frenzy expected to continue or are things leveling out? Here’s what we know.
Price Deceleration
There are multiple factors that explain why price deceleration in the housing market is inevitable. An article written by Lance Lambert for fortune.com explains, “Why is home price growth likely to continue decelerating in 2022? Some of it is simply a housing market returning to normal after a pandemic-spurred boom sent home price growth to unsustainable levels. Record-low mortgage rates are expected to rise, while looming return-to-office plans have cut down on some second-home purchases.”
Will the Market Weaken?
Many worry that if housing prices go down, it means the market is weakening. However, this is an inaccurate assumption. The above mentioned article goes on to say, “Price growth deceleration doesn’t mean the housing market is weakening. In fact, even at a much lower rate of home price growth, it could still be a buyer’s nightmare. The mismatch between supply, with inventory still floating around a 40-year low, and demand, driven by the influx of first-time millennial homebuyers, is poised to keep this a seller’s market through 2022.” Luckily, lack of inventory might not be an issue for long.
Is the End in Sight?
While the deceleration won’t happen all at once, it’s coming. Home price growth can’t outpace income growth for too long. It’s bad economics! Current estimations show that home price values are growing at a rate that’s six times faster than income growth. This means that it’s only a matter of time before housing prices come down. They have to or a massive portion of the population will not be able to afford to purchase a home.
Inventory
Another issue in the real estate market that contributed a lot of fuel to the fire was the lack of inventory. Typically ‘hot spots’ or high demand areas experience low inventory now and again. However, in the last couple years, the lack of available properties was a nationwide problem. Houses were being snatched up so quickly, there were historic lows in the number of available properties. This led to a scarcity mindset and people began to compete for homes like never before. Prices were driven up to astronomical heights. Buyers were waiving inspections and appraisals while also agreeing to purchase homes ‘as is’. The number of all cash purchases increased as well. Experts say that this inventory issue won’t be a problem later in 2022. While inventory levels won’t be fantastic, they will start to normalize in the coming months.
The real estate market has been mayhem throughout the last couple of years. However, it appears the end is finally in sight. Rest assured, home prices will slowly begin to come down and purchasing a home won’t feel quite so chaotic.
