The housing market is complex, with numerous factors defining whether it’s a buyer’s or seller’s market. In recent years, the mortgage industry has seen a significant amount of growth, with home values skyrocketing in some areas as interest rates remained low.
Consumers also found limited inventory, which has caused houses in some areas to sell above their list price. That’s changing now, and before you choose the best mortgage lender for your needs, you need to know a bit about what’s really happening.
Check out these facts about the housing market that show just how much it’s changed in just a couple of years.
30-year fixed-rate mortgages reached 7% in November
One of the most significant changes to the housing market has been the interest rates on a mortgage. With the Federal Reserve's push to increase key lending rates in its plan to offset inflation, home loan rates soared. The 30-year fixed rate mortgage rose to over 7% in November 2022, a level it had not reached in more than 20 years. In November 2021, that same 30-year mortgage would have had an interest rate of just 3.09%. As of January 2023, those rates are trending lower again, so we will have to wait and see how low they will go.
Pending home sales were down 32.6% in 2022
Pending home sales also fell significantly in 2022. This figure represents the number of people who are buying homes. The decline year-over-year was 32.6%, indicating that nearly a third fewer people decided to buy a home in 2022 than the year prior. That’s one of the largest declines since 2015 when that data first became available.
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Home values are increasing, but at a slower rate
Data from over 400 metro areas in the U.S. found that the median home sale price in 2022 was $352,125, which is 1% higher than it was a year prior. That’s growth, but it’s a far cry from what occurred in recent years. Data show that home prices rose 17% in 2021 over 2020 figures to a value of $346,900. That’s a significant boost in value. For 2021, the average homeowner gained more than $50,000 in home equity in that year alone.
The Housing Affordability Index dropped
The Housing Affordability Index is a measure of how affordable it is for the average American family to buy a home. The National Association of Realtors (NAR) says “a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home.” In 2020, the NAR reported home affordability at 169.9, and by October 2022, that had dropped to 91.2.
Alongside those figures is the need to consider changes in income. The report showed median family income in 2020 was $85,807, while it rose to $89,507 in October 2022. Even with that increase, fewer people were able to qualify for a loan in the last year.
The home building sector has entered a recession
The National Association of Homebuilders stated the industry entered a recession in August 2022, which is possible even if the country as a whole did not. Though supply-chain disruptions hurt the industry in 2020 and 2021, much of that improved last year. Yet, the number of existing-home sales, single-family starts on new homes, and mortgage applications are all reaching decade-low levels within the industry.
On top of that, construction expenses for new homes have grown 35% since 2020, pricing out many consumers. As a side note, it may be time to shop for home insurance to combat the higher cost of rebuilding in the event of a covered claim.
It’s taking longer to sell a home
For those listing their home for sale, things are also changing. It was somewhat common to list a home on Monday and have offers by Friday, sometimes pushing contracts above the listing price. In November 2021, homes were on the market for an average of just 22 days. That rose to 56 days a year later.
Home prices fell in 14 of the 50 largest metro areas
Home prices fell significantly in some areas of the U.S. For example, the San Francisco housing market saw home sale prices drop 9% in 2022 over the previous year and 6.2% in Pittsburgh. They dropped 5.8% in San Jose, Calif., and 4.7% in Los Angeles.
A drop in home sale prices in these larger markets, which saw some of the greatest growth in the previous two years, is quite unusual.
House payments are up
Another way to look at the cost of homeownership now is by considering how much monthly home mortgage prices have risen. As of the end of 2022, the average mortgage payment was $2,254 on a mortgage with a 6.27% interest rate. That’s up 36.5% from the same time in 2021.
Fewer people are listing their homes for sale
Another notable fact about the 2022 housing market is that fewer people were listing their homes for sale, perhaps because the value they could get was lower. Data show that new listings were down 22% in 2022 over the previous year, which is the largest such decline since the start of the pandemic.
For many people, it will be more expensive to buy a home in 2023 compared with previous years. While the housing market seems to be heading to pre-pandemic times, for home buyers and sellers, things will look different this year.
Experts believe the economy, increasing interest rates, and high inflation will continue to affect the market going forward. Though most don’t expect a housing market crash, you may need to boost your bank account a bit more if you plan to buy now.
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