Lower sales figures do not automatically mean lower prices.
- Home sales fell 7.2% in February from January.
- The rise in mortgage rates largely contributed to this decline.
- It remains to be seen whether a drop in demand will lead to lower prices.
Since 2020, potential home buyers have been grappling with exorbitant property values. In February, the median price of a home sold was $357,300, according to the National Association of Realtors. This represents a 15% increase from just a year ago.
At the same time, however, the number of home sales was lower in February than it was in January. The total number of used homes sold last month fell 7.2%. And if this trend continues, we could start to see a much-needed decline in home prices nationwide.
Why Buyer Demand Could Decline
February home sales were just 2.4% lower than the same month a year ago, but fell sharply from January. And a big reason has to do with rising mortgage rates.
Although mortgage rates started the year at competitive levels, they have steadily increased in 2022. And this trend may continue for one important reason.
The Federal Reserve recently announced the first of several rate hikes this year. And while the Fed is responsible for setting the federal funds rate (the rate banks charge each other for short-term borrowing), its actions can influence consumer borrowing rates, including mortgage rates.
Will house prices start to fall?
To support today’s high home prices, buyer demand must remain stable. But if mortgage rates continue to rise, that’s unlikely to happen.
One of the main reasons so many buyers clamored for homes in 2021 was because borrowing for a mortgage was incredibly affordable. And while today’s mortgage rates are still quite competitive from a historical perspective, they are already not as competitive as they were last year.
If higher rates cause a lot of buyers to pull out of the market this year, we could see a lot less bidding wars. And that’s important at a time when housing stock is still very low.
Will 2022 be a good year to buy a house?
If home sales continue to fall and home prices follow, buyers could have better luck in the housing market this year than last, despite rising mortgage rates. But ultimately, it’s too early to tell how house prices will evolve.
Last year, many experts predicted that house prices would continue to rise in 2022. This could be true even if mortgage rates rise due to a dire lack of inventory.
In February, there was only 1.7 months of housing supply available on the market. For context, it takes roughly four times as robust supply to create an equalized housing market where neither sellers nor buyers have the upper hand. And given that many sellers are still dealing with pandemic and economic uncertainty (thank inflation), we don’t know how quick they’ll be to list their homes.
If inventory remains low, buyer demand could remain high even as it becomes more expensive to finance a home. Whether 2022 will end up being a good year for homebuyers remains to be seen.
The Best Mortgage Lender in Ascent in 2022
Mortgage rates are rising – and fast. But they are still relatively low by historical standards. So if you want to take advantage of rates before they get too high, you’ll want to find a lender who can help you get the best rate possible.
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