N185)What is the trend in real estate in America

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The U.S. real estate market has experienced every end of the housing spectrum over the last decade. More than ten years ago, real estate market trends bottomed out during the Great Recession. For the better part of this year, competition fueled what looked like the hottest housing market prices the industry had ever seen. Buyers were forced to compete with several offers on every property, drastically tilting the scales in favor of sellers. Homeowners were given an advantage thanks to an imbalance in supply and demand.

It should be noted, however, that the looming threat of a recession and the highest inflation rate the US housing market has seen in about four decades has forced the Federal Reserve’s hand into taking drastic action. In order to combat inflation and slow the economy down, the Fed has introduced a number of rate hikes, not the least of which are responsible for more than doubling mortgage rates at some point in 2022.

Hovering around 6.49% with 2023 just around the corner, the average commitment rate on a 30-year fixed-rate mortgage is up 3.38 points year-over-year. The increase was intended to stall the blistering pace of the housing sector, and the plan worked. Mortgage applications have declined in the wake of higher rates and buyers are less inclined to purchase a home with a recession appearing all but inevitable. At the same time, homeowners are reluctant to sell and trade their current mortgage rates for today’s inflated rates. In a way, it is almost too expensive for homeowners to sell their own properties.

2022 has seen the US housing market transition from firing on all cylinders to slamming on the breaks. The Fed’s plan to slow activity in the housing market is working, which begs a few questions: What does the current state of the American housing market mean for today’s investors? What does the real estate investing landscape look like for investors across the country, now and for the foreseeable future? Will the U.S. housing market crash in 2022 or thrive?

The following provides an in-depth look at the current state of the U.S. real estate market and sheds some light on how investors may approach the rest of 2022 and beyond.

Latest U.S. Housing Market News & Trends 

The U.S. housing market is undergoing a significant shift. As the government attempts to quell inflation with higher interest rates, everything from housing market prices to foreclosure rates is in flux. Now that the Fed has officially announced it will continue to increase rates to combat inflation, let’s take a look at the latest housing market news and trends impacting the national real estate sector:

Home Prices: Housing market prices have visited every end of the spectrum in as little as a decade. Exactly ten years ago, U.S. home prices were starting to recover from The Great Recession. Since then, the median home value in the U.S. has increased by more than 90.0%. To be clear, the fastest rate of appreciation has taken place during the pandemic. Over nearly three years, housing market prices have increased an average of 41.3%. Over the last 12 months, housing market prices have increased by 13.5%. Moving forward, it is safe to say prices will continue to increase. At the very least, the same indicators that have driven prices up in recent history are still in play. Supply and demand constraints will push prices higher, but increasing interest rates will weigh on mortgage applications and lower demand. As a result, prices will climb higher, but at a slower pace than the market has grown accustomed to. One-year appreciation may reach 1.3%, marking a significant slowdown over the previous 12 months.

Mortgage Rates: Following years of historically low-interest rates, the average commitment rate on a 30-year fixed-rate mortgage is rising fast. Dropping to as low as 2.68% as recently as last December to spark activity in the housing market, 30-year mortgage rates have more than doubled in 2022. Now around 6.49%, rates have increased to combat inflation and lower demand. Despite radically higher rates, however, there is still a chance of more increases. However, with data suggesting peak inflation is close, rates have softened. “Mortgage rates declined again last week, following bond yields lower. The 30-year fixed mortgage rate decreased to 6.49 percent and has now fallen 57 basis points over the past four weeks. Additionally, mortgage rates for most other loan types declined,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

Inventory Levels: Recent increases in mortgage rates and the looming threat of a recession have decreased mortgage applications over the last few months. However, slower inflation is on the horizon, as the Fed's move to slow the economy appears to be working. As a result, purchase activity has ticked up slightly. According to Kan, “The economy here and abroad is weakening, which should lead to slower inflation and allow the Fed to slow the pace of rate hikes. Purchase activity increased slightly after adjusting for the Thanksgiving holiday, but the decline in rates was still not enough to bring back refinance activity." More activity should continue to chip away at the already low inventory levels.

Rent Prices: The median rent for one- and two-bedroom units in the United States is about $1,356. Rents in the U.S. housing market declined in November, marking the third consecutive month-over-month drop. Despite the decline, rental increases over the course of the year are higher than pre-pandemic levels. Assuming trends developed in the last three years hold true, rents may decrease over the next few months because winter tends to coincide with less activity, but less inventory may ultimately drive prices higher in the warmer months of 2023.

Foreclosures Filings: The national foreclosure rate continues to revert back to pre-pandemic levels. While still down significantly over the last ten years, foreclosures are marching higher. October saw a total of 32,376 U.S. properties enter into the foreclosure process. At that rate, foreclosure filings are up 57.0% from the same time a year ago and up a much more modest 2.0% from the previous month. If foreclosures continue to increase at their current rate and the dollar continues to buy less, it is reasonable to assume that we may return to normal levels in the early part of next year.

The Top U.S. Real Estate Markets In 2022

The top U.S. real estate markets in 2022 are directly correlated to the new marketplace created in the wake of the Coronavirus. In particular, we have seen a transition from larger, primary cities to smaller, secondary cities. Thanks, in large part, to work-from-home trends, buyers have vacated the expensive confines of more expensive cities and traded them for more affordable alternatives.

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