Spring is historically the busiest season for the housing market. Over the last few years, there has been a significant increase in the number of homebuyers, but a shortage in the amount of available property. The already limited number of homes for sale took a hit during the pandemic.
Many homeowners reconsidered putting their houses on the market until the country stabilized. While some homeowners may be more confident about listing their homes for the upcoming season, many are still on the fence.
With such limited options, homes are selling for an all-time high, making it even harder for homebuyers to find a good deal.
To Buy or Not to Buy
In previous years, there was a steady decline in the number of first-time homebuyers. This was largely because buying a house was seen as too expensive, especially with a sharp rise in the general cost of living. Some experts predicted the financial uncertainty from the COVID-19 pandemic would further discourage new homebuyers.
However, the pandemic caused rental rates to rise in many parts of the United States. Many renters looking for their first house are still concerned about the price, but figure if rental rates are going to cause as much financial stress as paying a mortgage, it’s better for them to at least own their own home.
Existing homeowners have the opposite problem. While they may be able to sell their house for more, it also means they’re spending more to buy a new home. Even if they plan to downsize, it looks to be more costly to move than to stay in their current home. Mortgage rates are also increasing, so there’s a good chance moving into a new home could result in higher interest rates.
2021 saw an increase in average housing prices, but not nearly as significant as 2022, with the median home cost going up by around $12,000.
2022 saw one of the biggest spikes in housing prices. The average cost of a home rose by more than $80,000.
As a side effect of the pandemic, interest rates hit a record low. In 2021, 15-year mortgages hovered around 2.15%, while 30-year mortgages were frequently under 3%. Unfortunately, the Federal Reserve announced a rise of 0.5 percent in the interest rate to slow inflation.
Even before this announcement, mortgage rates were starting to slowly climb back up. In May 2022, the average interest rate for a 30-year fixed-rate mortgage reached 5.55%, and by February 2023, the national average was 6.96%, the highest rate since 2009.
The increase in both housing prices and mortgage rates does not appear to be temporary. Many housing experts are predicting a continued increase in the following years. This is yet another reason why so many homebuyers are trying to find a house now before it becomes even harder to justify the cost.
Because of the greater demand for houses, homes are staying on the market for shorter periods. Based on data from the previous year, most homes are expected to sell in under a month. This means that if you’re planning to buy a house, you don’t want to sit on a potential purchase.
The number of homes for sale has lowered from 2021, hitting a record low in March.
An Upcoming Crash?
Given the chaos caused by the pandemic, there was concern that the housing market might experience a crash similar to the previous recession. While this was initially a valid concern, it was quickly realized to be false.
Unlike the 2008-2010 housing crash, there’s a huge group of homebuyers (even those who are willing to purchase above the asking price), keeping housing prices from plummeting. Mortgage lenders also enacted stricter rules to limit the number of defaults from subprime mortgages.
Given rental prices are also expected to increase, it’s unlikely the number of homebuyers will experience any sort of decline.