As part of our series in which we ask prominent economists and real estate professionals what they think about the real estate market, we spoke to Nadia Evangelou, Senior Economist and Director of Forecasting at the National Association of Realtors.
Federal association of real estate agents
Housing affordability is here as mortgage rates continue to rise (see the lowest rates you can qualify for here) at the same time as house prices. That’s why we spoke to Nadia Evangelou as part of our series, in which we ask prominent economists and real estate professionals for their opinion on the housing market. She is Senior Economist and Director of Forecasting at the National Association of Realtors (NAR) and focuses on regional and local market trends, including the impact of changing demographics and migration patterns. She also specializes in research and analysis of local housing affordability conditions and solutions to increase the housing stock. Here are her thoughts on the housing market now.
The prospects are that mortgage rates will continue to rise
According to data from Bankrate, 30-year term mortgage rates hit around 6% in June, up from just over 3% a year ago. The upward trend will continue, says Evangelou, just not at this rapid pace: “I don’t expect the same strong increases that the market experienced in March and April. It appears that mortgage rates have already priced in some of the impact of upcoming Fed rate hikes,” says Evangelou.
Some buyers may want to consider an ARM
Given the current market, Evangelou says some buyers should consider getting an adjustable-rate mortgage instead of a fixed-rate mortgage. “If you’re planning to sell or refinance in the next 5 years, a 5/1 year ARM may make more sense since the interest rate on it is still under 4.5%.” Therefore, the monthly mortgage payment for a home at the average price is about $300 less than the payment for a 30-year mortgage,” says Evangelou. Here are the lowest mortgage rates you can qualify for.
There are signs that the market is cooling off
Both rising mortgage rates and home prices are affecting the affordability of many buyers. “As a result, existing home sales have declined over the past four months. I expect a bigger drop in home sales activity in the coming months, especially after the summer months,” says Evangelou.
And buyers are priced out of the market. Still, not all homebuyers can afford these additional homes. According to Evangelou, buyers making $75,000 can now afford about 25,000 fewer offers than they did in January.
Institutional buyers can increase competition for first-time buyers
As rising mortgage rates hurt affordability, more people are renting and rents are rising sharply due to low inventories. “For institutional buyers, this means bigger profits. However, a greater market presence of institutional buyers increases market competition for first-time homebuyers. Research has shown that institutional investors may be taking a significant portion of homes that would otherwise be sold to first-time and lower-income buyers,” says Evanagelou.
Real estate prices will continue to rise, but at a slower pace
“Real estate prices will not fall in 2022 due to housing shortages. Remember that housing prices do not fall when there is a housing shortage. In fact, house prices rose by about 15% in May, even though mortgage rates were about two percentage points higher than a year earlier,” says Evangelou.
The stock increases
There are about 20,000 more homes for sale for buyers making $200,000. “While it is promising to see more homes available on the market, more entry-level homes are needed,” says Evangelou.