Last Updated on November 29, 2022 by Luke Feldbrugge
Welcome to the Housing Market Trends December 2022 monthly update from Homes for Heroes. We report on the U.S. housing market trends every month because of Ferris Bueller. He famously said “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.” That is more true in the real estate industry than other areas of the economy, so it only makes sense to step back and look around each month.
This month we will be taking a look at the numbers that drive the real estate market in the United States: interest rates and home prices. Both elements beg the question: Have we topped out yet?
Housing Market Trends for December: Interest Rates Again
The biggest real estate story of the year has been the rising interest rates on mortgages – and everywhere else. While 7% is not exceedingly high by historical standards, especially if you look back about 40 years, it is at an all time high for the recent decade. Moreover, the mortgage interest rates doubled in one year, from 3.3% to more than 7% currently. That doesn’t happen very often. Actually it’s never happened before.
Meteoric rises in interest rates scare people, and it’s bad news for both buyers and sellers. It makes homes harder to buy and more difficult to sell. It leaves all of us with the question: Have higher mortgage rates topped out until the end of the year and will they stop rising? No one can say for sure, but in this housing market trends December report, we offer what the experts are saying.
“With inflation still running at a 40-year high and the Fed expecting a few more rate increases to combat it, mortgage rates will experience upward pressure through the end of 2022.” – George Ratiu, Manager of Economic Research, Realtor.com
“While mortgage rates are expected to continue to drift higher over the coming months, much of the rapid increase in rates is likely behind us.” — Mark Fleming, Chief Economist, First American
Next year might not be as bad as this year, in terms of higher interest rates, but we may not have seen the end of the increases. It all depends on the Fed, the Federal Reserve System. The board of the Fed raises and lowers interest rates and the mortgage industry sets its rates based on those moves. The Fed is currently in a fight against rampant inflation, and it uses interest rates to try to control inflation.
There are good resources out there to explain why the federal reserve affects mortgage rates. It’s important to remember that it’s not just the Fed that affects mortgage rates, it’s a combination of factors*:
- Economic growth
- The Fed (and it’s monetary policy)
- The bond market
- Housing market conditions
It’s easy to blame the Fed because it’s this big, faceless bureaucracy that nobody understands. There are, however, many factors that contribute to rising interest rates.
Can you do anything about rising interest rates? Your best and only defense for first-time homebuyers is to have a good credit history and a solid credit score. That will help you when you sit down and talk to your mortgage broker. All real estate is local, and that goes for your relationship with your lender too.
Housing Market Trends December: House Prices
Watching housing prices over the past few years has been a wild ride. Price increases have caused it to be mostly an escalator ride, but there is a consensus that home values are finally coming down. The dramatic increases couldn’t last forever, and most markets experience a correction after volatility.
The experts were almost entirely in the blue a couple of months ago. Now half are in the red.
If you look at the predictions of the big banks, there’s even more red. It’s important to note here that these institutions base their projections on the big builders, so this is more of a comment on new homes versus existing homes. New builds are down right now because of interest rates; builders don’t want to take the risk during soaring interest rates, high inflation and a possible recession next year.
It’s probably a safe bet that home prices will come down next year. How much and for how long is anyone’s guess, but it should give sellers two things to think about:
- Did my house increase in value dramatically over the past 2-3 years?
- Is it the best time to cash in all that extra equity and sell?
You can, of course, curse your luck for not selling at the top of the market, or you can see the opportunity and take advantage of it.
Is This a Good Time to Buy a House?
For potential home buyers, decreasing home sales prices is very good news and maybe it will be enough to bring some back from the sidelines in the new year. On the one hand, interest rates are high. The real estate world will do that to you. If you analyze all the factors that could help you make a decision about finding and buying a house, you will find as many downsides and upsides.
If you need one more fact, it’s this: the housing supply is coming back to more normal levels, so the number of homes will provide more choice. While there is still a limited supply of homes and somewhat low inventory, you won’t be forced to jump on every house that comes on the market and enter bidding wars.
You too have a couple of questions for the coming year you can ask yourself:
- Is the housing market better for buyers than it was one or two years ago?
- If you waited to buy a house because of the crazy market, are you glad you did?
Finally, how are rents treating you this past year? If you are rolling your eyes right now, we get it. Renting has become increasingly frustrating for you and hard on your budget. Traditionally, the argument for buying a house is that it’s a much better alternative to renting. And for the foreseeable future, with rents at their highest level, that’s an even more convincing case.
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We publish our Housing Market Trends every month. If this is helpful, check us at the beginning of every month.