Find Out if Your Market is Overvalued
With the rise of mortgage rates (the average 30-year fixed mortgage rate topped 5.4% this week) up 15 basis points since last week. While this doesn’t seem extremely high, increasing rates will impact the affordability of purchasing a home, especially for first-time buyers.
CoreLogic’s Housing Market Assessment
CoreLogic calculated around 400 metropolitan areas to find which markets were normal, overvalued, and undervalued. What did they find? (surprise, there aren’t many that are undervalued), their findings gauged that 65% of markets were overvalued.
Every major market in Washington, Oregon, Nevada, Hawaii, and Arizona were overvalued.
"With robust home price growth since the onset of the pandemic, many markets could now [be] considered overvalued, particularly when comparing the price growth to the rate of local income growth," Selma Hepp, deputy chief economist at CoreLogic, told Fortune in an interview.
Now, while home prices are still rising and overvalued, that doesn’t mean a drastic change will happen overnight. Home prices are expected to rise at the current rate for at least the next 12 months. CoreLogic’s prediction of decreasing home prices isn’t expected to begin until late 2022 even early 2023.
For homebuyers looking for a beacon of hope, be patient and save up over the next year or so to be prepared for decreasing home prices in 2023.
How Mortgage Rates Impact Housing Affordability
First-time home buyers just can’t seem to catch a break, but beyond affecting them, increased mortgage rates also mean borrowers will lose their mortgage eligibility.
The rise in mortgage rates has some real estate experts predicting that the hot housing market we’ve all been experiencing for the past two years will finally cool off and slow down. A recent survey conducted by Clever Real Estate, shows people are 78% more pessimistic about the real estate market. This comes primarily from a lack of inventory which has driven home prices up, along with rising mortgage costs that are making every aspect of purchasing a home more expensive.
CoreLogic reported earlier this month, that they predict home price growth to decrease. Between January 2021 and January 2022, home prices increased 19.2%, but, over the next 12 months, CoreLogic predicts this number to increase by only 5.0%. This would be a massive change from the double-digit increases we’ve seen since 2020 and should increase buyer confidence.
The increase in U.S. home prices has quickly outpaced U.S. income growth, which isn’t sustainable for a healthy housing market and homebuyer confidence.
There’s clear evidence that an average U.S. household income can’t afford current home prices. Historically, the average house in the U.S. cost around five times the yearly household income. Today that rate has increased well past seven times the yearly household income.
So, what’s going to happen now? Increased mortgage rates are expected to help curb the skyrocketing home prices, which will alleviate some stress homebuyers have. Ideally, housing inventory would increase over the next 12 months as well, but we can only hope.
As always, we will stay up to date with the latest in the real estate industry to help you keep a pulse on the constant changes in the housing market.
For more content related to mortgage rates, housing inventory, and industry news read these blogs from The CE Shop: