Last Updated on June 6, 2022 by Luke Feldbrugge
Welcome to the Housing Market Trends monthly update for June 2022 from Homes for Heroes. This report focuses on the residential real estate housing market. We listen to the experts and boil down what they have to say to assist you, our heroes, with decision making regarding buying a home, selling your home, or refinancing your mortgage.
The real estate industry generates a lot of numbers, and an economic report on the industry infuses even more numbers. The best way not to get lost in them is to know which numbers to pay attention to. We hope this summary will help you keep your eye on the ball (the “ball” is about making a good decision about housing).
Housing Market Trends May 2022
- This is not a housing bubble. We repeat, this is not a housing bubble.
- Will home prices keep going up?
- Affordability and what it means
The current real estate market may have you scared. You hear a lot in the press–and maybe from friends and family–that now is the wrong time to buy a house. To combat the fear, this is a very good time to stick to “just the facts, ma’am.”
The Case Against a Housing Bubble
If you remember the last housing bubble, which reached its apex in 2008, you may have some very good reasons to worry that we are doing that all over again. After all, we haven’t seen price escalation like this since then.
It wasn’t, however, the prices alone that caused the last housing bubble. There were other, more influential factors that precipitated last decade’s housing market collapse. For example, back then we had:
- Loose Lending Standards
- Cash Out Refinancing
By definition, loose lending standards sound like a bad idea. Lending institutions were so eager to sell mortgages that they dropped a lot of the strict requirements that you had to meet to get a loan. Mortgages were given to people with no jobs, no income and very little verification was done. The result was widespread defaults on mortgages and one of the largest foreclosure waves in U.S. history. Consequently, we saw homes lose value, which was one of the only times that happened.
Mortgage lenders have since tightened up standards and become quite diligent in making sure that you can afford to pay the mortgage they are going to give you. As evidence of that, foreclosures are currently at a record low (0.11 percent).
Cash-out refinancing was also rampant during the last housing bubble. This allowed people to refinance and turn the equity they had accumulated into cash for things they wanted. This is where we heard a lot about people “using their homes as ATM machines.” That also didn’t work out very well.
As you can see, cash-out refinances have dramatically decreased in the past two years.
What is Forbearance?
Another number that shows the health of lending in the mortgage industry is attached to the practice of forbearance. Forbearance is an agreement between you and your lender to lower or pause your mortgage due to hardship. The pandemic triggered a lot of forbearance requests, but now the numbers are coming down. The safety net seems to be less needed, and those people coming out of forbearance are in better financial situations than in the past.
Where are Home Prices Headed?
That’s the question on almost everyone’s mind (at least those considering buying, selling or refinancing their homes). If you are buying a house, you want to know if you should buy now, when prices are going up significantly, or should you wait for things to slow down?
All indications are that housing prices will continue to rise. They may slow down, but the house you are looking at (or houses) is probably not going to decrease in price. The only bright spot is maybe the crazy bidding wars for houses will calm down so you can keep a clear head.
Projections for 2022 are price increases between 8 and 10 percent. The average price increase before the pandemic was 3.8 percent and the chart below shows that we might return to those levels during the next four years.
If, however, you are selling your home, its increase in value is probably locked in, even through the next four years. As we said before, it’s very unlikely that housing prices will decrease.
With this information and these projections, the decision to buy now rather than wait is pretty clear. Prices aren’t going down. If you buy now, the value of your home will continue to increase for the next few years, and that means you will be building equity in addition to having a great home. Building equity equals building wealth for the future.
The only question you need to ask yourself is can you afford it?
Affordability: What it really means
Affordability is tricky because it’s both a “feeling” and an economic measure. We’ve seen mortgage rates go up this year and we have seen a resurgence of inflation after a long mostly dormant period. One of these factors alone is enough to affect affordability, especially for new home buyers. When you get both, it can feel like a one-two punch.
Sometimes the best way forward is to take a step back and see the whole picture. The last decade saw a spike in affordability, making it easier to finance and buy a home. Now, however, we are coming down off of that spike to more historical affordability numbers.
Consequently, there is the feeling of affordability, which is difficult right now, and the economic measure of affordability, which is more in line with historical averages. The last affordability factor to take into account is wages. Even though interest rates and inflation are taking a bite out of your home ownership picture, wages are also going up. That can mitigate some, but not all, of your apprehension about the economic factors currently in play. The question you need to ask yourself is: if your monthly mortgage payment is higher now due to higher interest rates, have your wages increased too? Maybe it’s a wash.
Owning a house is typically a long-term investment and a long-term commitment. The real estate market, on the other hand, can get a little obsessive about short-term trends and numbers. It’s important to get, and hang on to, a clear perspective about your own home buying, or selling, goals.
Homes for Heroes Saves Heroes Money When They Buy, Sell or Refinance
If you’re a firefighter, EMS, law enforcement, active, veteran or reserve military member, healthcare professional or teacher and you’re ready to buy and/or sell a home, we would be honored to work with you to get it done and save you money in the process. Let our real estate and mortgage specialists in your area work with you to find the home you want. If you close on a home with your local Homes for Heroes specialists you can save an average of $2,400. Simply sign up today to learn more about how our specialists can assist and save you some money.