Source: Forbes —
- Mortgage applications fell 1.9% from the previous week for the week ending on December 2, with many potential homebuyers likely waiting to see what the rate hike announcements will be like this week.
- Mortgage rates fell for the fourth consecutive week on the positive inflation data, but potential homebuyers are still wary due to volatile mortgage rates driven by the Fed’s aggressive rate hikes.
- Pending home sales on existing units dropped 4.6% in October, making it the fifth month in a row with declines.
We saw home prices skyrocket during the pandemic when people took advantage of low interest rates, fled from cities and found themselves crammed into home offices. With aggressive rate hikes and the fears of a recession, the real estate market has changed in 2022.
The real estate market has been expecting a fall for some time now; historically, home prices drop when interest rates go up. However, that hasn’t been the case in 2022 due to a unique set of circumstances. Let’s look at mortgage demand to see if it’s actually falling (or rising).
The current housing market
When the pandemic first started in 2020, there was plenty of uncertainty over what would happen to the real estate market, as nobody knew what to expect. With the economy abruptly halted, the government got involved with stimulus checks and lower interest rates.
Mortgage rates dropped down to a record low of 2.65% in January 2021. With low interest rates and an unprecedented amount of employees now working from home, there was a real estate boom.
But this boom began to retract quickly. In June 2022, inflation reached a 40-year high of 9.1 due to the combination of pandemic restrictions loosening up, supply chain disruptions, a strong labor market and astronomical housing prices, so the central banks got involved. The Fed began an aggressive rate hike campaign to slow down the overall economy.
Plenty has changed since 2021 when people were taking advantage of low interest rates to get into the real estate market. Mortgage rates have increased to an average of 6.43% as the Fed’s benchmark interest rate is nearly 4%.
Many potential buyers on the sidelines are waiting for either interest rates to drop or for housing prices to decrease. Many experts felt that the inflated housing prices along with increased mortgage rates would be enough to slow down the real estate market. The inflation numbers and housing prices have remained stubbornly high, but show signs of a slow descent.