Mortgage rates on 30-year fixed-rate loans have risen from around 3.5% earlier this year to over 5.6%, and the pros say they could rise (see lowest mortgage rates which you can claim here). Home prices have also risen steadily, rising about 20% from March 2021 to March 2022, according to CoreLogic.
This news is undoubtedly causing a groan among aspiring home buyers. But we have good news for you: there are signs that competition in the housing market may be running out of steam, say the pros.
Redfin reported that for the first time in six months, competition from homebuyers fell slightly in March 2022. Sixty-five percent of homes sold by Redfin agents faced competition – or multiple offers – in March 2022, compared to 67% in February. “I expect the competition to continue to drop,” says Taylor Marr, deputy chief economist at Redfin.
Marr cites several reasons for the change, including rising interest rates – the current average for a 30-year fixed rate mortgage is over 5.6% – Federal Reserve measures to reduce the inflation, baby boomers staying in homes rather than moving into retirement communities and the conflict in Ukraine. “Homes are still selling above asking price, but the market is changing,” says Marr. “When you change the thermostat, it takes time for it to cool down.”
For his part, Lawrence Yun, Chief Economist at the National Association of Realtors, recently shared with MarketWatch Picks that he too sees competition soon declining: “The combination of rising interest rates and rising Real estate prices will push some potential buyers out of the market, which may lead to reduced competition after the summer buying season ends.
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Marr agrees that by the end of the summer, there will be less competition among buyers on listings, as well as more homes on the market. He warns, however, that some areas that have become popular migration destinations, including cities such as Tampa, Phoenix, Nashville and Atlanta, may continue to see high rates of roster competition. “There are still a lot of people moving to these places…even in the face of very high interest rates,” he says.
The drop in competition at the end of the summer is also when Skylar Olsen, Tomo’s chief economist, predicts a market cooling. “We are in a period of transition,” she says of what is happening now.
Even with signs of a housing market slowdown over the next few months, buyers shouldn’t expect a sudden bargain. As MarketWatch Picks recently reported — after speaking to five economists — house prices are unlikely to fall significantly. “House prices will continue to rise as there are not enough houses available to meet demand, but the combination of rising house prices and high mortgage rates means that fewer people will be able to afford housing. ‘buy,” Holden Lewis, real estate and mortgage expert at Nerdwallet, told us.
But just because economists are predicting interest rates will rise doesn’t mean buyers should get into a bidding war just because they’re panicking about interest rates. “If you find a unit that works for you and you know it’s somewhere you’ll be staying for a long time, then you should go ahead,” she says. “But you don’t have to rush to lock in a rate.”