What is happening with interest rates?

Mortgage rates lead the market conversation this year, with interest rates peaking mid to end of June at about 5.81 and back down as of this writing to about 4.99. As the Federal Reserve continues to raise rates to ease inflation, mortgage rates typically fall when we are in a recession. While there is a lot of debate by the politicians as to whether we are in a recession, if we are not, are we going toward one?

A recession is an economic slowdown historically defined as two consecutive quarters of negative growth. In the last six recessions since 1980, interest rates declined. This is good for buyers.

In July of 2021, the Wall Street Journal asked economists who thought there would be a recession in the next 12 months, 12% answered yes; in July 2022, a whopping 49% answered yes. In four of the last six recessions (excluding 2008), home prices rose, not declined.

Why the housing market will not crash.

In addition to the runaway mortgage debacle, in 2008 the market crashed from an abundance of homes on the market, causing short sales and foreclosures. Today there is a shortage of homes on the market. Primarily the current lack of inventory will keep prices more stable. The typical neutral market (neutral meaning interest rates are affordable and the number of buyers and sellers in the market are equalized) is six- or seven- month’s supply of homes. We are currently at or under three month’s supply, so by definition, it is still a seller’s market.

New construction housing starts have slowed since May. The cost of materials and builder’s exercising caution by not building more homes than they feel they can complete is keeping inventory light. These are factors that stabilize the prices of homes.

In addition, those securing a home loan today versus the early 2000’s, are vetted, stringently qualified and less likely to go into foreclosure. Foreclosure filings peaked in 2010 at 2.9 million. Tightening lending standards has reduced the number of foreclosures.

What is ahead in 2022 –2023?

Experts say mortgage rate projections are still slated to be in the 5 to 5.33% range. The silver lining for buyers is that by stabilizing interest rates, buyers will have more confidence in the market.

Benefitting both buyers and sellers, prices forecast for 2022 show an average of 10.3% appreciation over last year according to seven key industry leaders on home prices. Core logic reports 2021 home appreciation was 15%. A decline, but not dropping the bottom out of the market.

Will this slow home sales? Looking at the National Association of Realtors study, at the current pace of sales today, sales are projected to reach 5.1 million homes during this year. This is down from 2021 of 6.1 million homes sold. However, in pre-pandemic years the home sales were much closer to the numbers projected today. The market is more stable than some would say.

Data from New York Times, National Association of Realtors, Freddie Mac, Keeping Current Matters, and other real estate sources.