In July, the Federal government announced another 0.75% interest rate hike. So, if you’re considering applying for a new home loan in 2022, you can expect to pay a lot more for your mortgage. This is sure to impact the real estate housing market in some way, although so far things aren’t panning out as predicted.

The last two years have seen the hot real estate housing market cool slightly. Yet, prices aren’t following the expected trends.

Will the market for housing crash soon, or will it prevail? Here’s what the experts have to say.

Mortgage Rates Likely to Continue an Upward Trend

Mortgage fixed interest rates have already doubled this year. Economists say further increases could depend on several factors, including:

• Strong jobs reports causing a spike in interest rates
• No signs of inflation peaking, driving rates higher
• The prospect of the Fed front-loading their interest rate hikes may keep them stable

This last theory hinges on the prospect that more mortgage rate increases now mean a decline in rates later as the economy weakens. 

Experienced realtors predict the federal government will raise rates at least three times this year to try and fight inflation. Due to this, most homeowners will choose adjustable-rate mortgages in anticipation of an eventual decline in interest rates.

Home Price Increases Will Slow Down

For now, limited inventory is keeping home prices high. Yet, this trend might not last much longer, according to housing market predictions.

Ultimately, homeowners will need to reduce their prices to compensate for buyers’ affordability issues. Leading economists predict that home prices will continue to escalate until around August before they level out.

It’s important to note that the extremely high prices in recent years will impact what buyers and sellers view as the norm in years to come. Lower prices will still far exceed those recorded in pre-pandemic years.

Sellers who hoped to take advantage of high prices may decide to hold back until the market improves. This will further constrain the housing supply.

As the trend toward remote working continues, prices in the suburbs will still outpace growth in more built-up areas. Millennials are the primary drivers of this trend, due to their preference for family-friendly neighborhoods. 

According to economists, cautious buyers are pushing the market to cool and guiding it towards a more balanced scenario, too.

Demand Should Cool

Uncertainty about the country’s economic future means growing hesitancy among home buyers. 

As the cost of living escalates, these buyers are less willing to commit to buying a home. They’re hesitant to saddle themselves with a hefty mortgage on top of their living expenses.

Thus, huge slowdowns are likely in the previously white-hot regions where demand, inventory turnaround, and prices have soared to abnormal levels in the last two years.

Mortgage Defaults Will Increase

Borrowers enjoyed protection from foreclosure for over two years, but now that things are back to normal, outstanding payments are catching up with them. 

Banks may take action against defaulters now, so normal foreclosure activity should resume soon. Already, foreclosures increased by 30% in the first half of 2022. 

In the last few years, distressed homeowners could put their property on the market and sell it in time to avoid foreclosure. It’s a lot more difficult to achieve this amid the uncertainty of the current market. 

Areas with a small pool of buyers will see the greatest increase in foreclosures, especially where homeowners have FHA and VA loans.

More Stringent Lending Requirements 

The looming risk of foreclosure and rising interest rates means banks will tighten their lending policies. Mortgage credit availability started to decline in January 2022 and should continue on this downward trajectory. 

That’s because, when money leaves the market, there’s less money left to lend. This leads to a natural preference for lenders to favor more qualified buyers. 

Unfortunately, this will decrease the pool of potential home buyers. Fewer buyers mean more people looking for rental properties.

Rents Will Continue to Skyrocket

Across the nation, housing shortages and huge demand for rentals have driven prices to an all-time high. Some places have experienced a 20% increase in rental prices. 

High rents are bound to impact the cost of living and increase the inflation rate even more. 

Building costs are increasing phenomenally, too. That means there’s little incentive for developers to build affordable housing, which could ease this situation.

Likewise, local planning commissions don’t encourage more growth in their already packed neighborhoods. 

Investors Look to the Real Estate Housing Market

With inflation at the highest rate in 40 years, investors are turning to real estate, food, and energy.  Traditionally, stock quotes on these items rise during times of high inflation, providing a hedge against inflation. 

By investing in assets that will increase in value, investors realize higher returns in this type of economic climate. If they invest in bonds right now, they’re bound to lose money. 

So far, rising real estate prices suit these astute investors, making real estate one of the best places to invest money at present. What’s more, high demand and rising rents are playing into the hands of real estate investors.  

For now, these wealthy, credit-worthy buyers could help sustain property prices at their current high levels for longer.   

Article By: MIKE WHEATLEY