Calm Waters Ahead for Homebuyers?

Earlier this Month, the housing market gained valuable information from two key economic reports that we have all grown to love; and while these reports lay the ground work to the the basic summary of what's happening in the market, it’s definitely not the full story.

1. The Case-Shiller home price index, released on April 26th, showed that home prices are appreciating at a faster pace.
2. The pending home sales index, released on April 17th, revealed that home sale contract signings decreased again.

The Wind is Calming for Projected Home Prices Long-Term

The Case-Shiller home price index for February showed that home prices are appreciating at a faster pace both monthly and annually. Month-over-month, the 20-City Composite increased to 2.4%. Year-over-year the 20-City Composite showed an increase of 20.2% -- which is up compared to January’s 18.9% annual gain.

This, ultimately doesn’t mean that the market will see immediate results in home prices as May is the start to the "busy season" on people buying homes (Schools out for Summer). If home buying ramps up this May, like it historically does, home inventory could shrink to even lower levels; which, lower inventory levels could push home prices up even higher (yikes!).

Because inventories are so low, and the market demand still overwhelmed with home buyers, home prices are likely to keep rising (or stabilizing) unless the Fed has something to say about that in the upcoming July FOMC meeting, just a quick 6 weeks away. The Fed, already announced a 50 basis point increase to the bank lending rate earlier this month and is expected to do another 50 basis point (upwards to 100 basis point) hike again in July (gulp).

Fannie Mae Economic and Strategic Research Group predicts that home prices will be appreciating just 3.2% by Q4 of 2023 which is a big change compared to the YoY increase of 20.2% we have currently seen.

Fewer "Boats" (Buyers) on the Water

In March, the pending home sales index decreased for the fifth consecutive month, falling 1.2% from its level in February, and as of May 26th, falling another 16%. Though decreases are never a good thing, this is actually music to my mortgage ears because this could mean more homes available to buyers in the near future.

With a decrease in contract signings, the increase in rates has started to thin out the herd, it’s hopeful that housing inventory will rise, and bidding wars will start to cool off. According to Lawrence Yun, chief economist for the NAR, “multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions.”

Bottom Line

Rates rising from 3% at the start of the year to approximately 5.50% as of May 26th have had an effect on the cost of a home and we are slowly starting to see the effects on Pending Home Sales which should be the leading indicator of where Price Appreciation is headed...to calmer waters.

Ultimately, continuing rate increases and rising inflation will be the ultimate drivers where the housing market is headed, and with the Fed FOMC Meeting in July, we will know a little bit more to this mortgage puzzle just a short 6 weeks away.

Ralph Tapia is a Mortgage Loan Officer located in Houston, Texas.

I left the Oil and Gas Industry after 11 years before deciding to get my Mortgage Originator License and go full time. If you need home financing or have questions about home financing, I'm just a phone call away.

RALPH TAPIA? Sales Manager & Mortgage Loan Originator NMLS# 1420289 9811 Katy Freeway Suite 1025 Houston, TX 77024 C: 281.881.0612?[email protected]

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CMG Financial, LP NMLS# 1820 | Licensed to do business in Texas | An Equal Housing Opportunity Lender | cmgfi.com

Sources:?HousingWire,?MarketWatch,?S&P Global