Where Does the Housing Market Go From Here?
By: James Flippin · September 29, 2022 · Reading Time: 3 minutes
The Run-Up in Prices
Home prices have been on fire over the past couple of years, rising 24% between November 2019 and November 2021. This tremendous surge could be attributed to a number of different factors, including record-low interest rates, a housing shortage, and the rise of remote work.
In particular, studies have shown that increased housing demand, as more people worked from home, accounted for 60% of the housing price spike. Since people were no longer bound to a physical office building, they were free to move virtually anywhere in the country.
Homes in spots like Orlando, Florida; Charleston, South Carolina; and Wilmington, Delaware have experienced some of the biggest price hikes.
How Mortgage Rates Factor In
In an attempt to slow down the rapid growth of prices in housing and elsewhere, the Federal Reserve has been ratcheting up interest rates this year.
The average rate for a 30-year fixed US mortgage just recently hit 6.87%. That’s the highest it’s been since 2002, and represents a significant jump from last year’s average rate of 2.96%. The thinking behind this strategy is that raising interest rates makes the cost of borrowing more expensive, which should help to slow demand and ease prices. However, that hasn’t quite happened yet.
For this reason, Fed Chairman Jerome Powell has said he still expects a difficult correction in housing prices ahead.
Should You Buy or Rent?
Potential homebuyers find themselves at a difficult crossroads. Do you keep renting while waiting for prices to drop? Or should you lock in a mortgage now before rates go even higher? There are a few tips to keep in mind when determining if this is the right time to buy.
First, always assess the bigger picture and remember that renting is temporary while buying is permanent. Don’t rush into a life-altering decision just because of current economic factors. Additionally, you can always shop around and get a few offers for mortgages. That way, you’ll know exactly how much you’d be paying for your mortgage — which you can then compare to your rent in order to make a more informed decision.
The future of the housing market is far from certain right now. If you’re unsure about whether to buy a home, you can always delay your decision for a few more months until you feel more confident.
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