Two of the most significant issues affecting the real estate market today are the highest-ever inflation levels and rising mortgage rates, according to a National Association of Realtors® overview given recently in recognition of National Homeownership Month.
Rising interest rates have impacted some buyers’ ability to enter the market, according to Dr. Jessica Lautz, vice president, demographics and behavioral insights, at NAR. With interest rates at 5.8%, that means that for a $300,000 home, the monthly mortgage payment has increased from $1,300 to $1,800.
“We’ve seen quite a jump in the last few months,” Lautz said. “A lot of people can’t afford to enter the market because they can’t afford the monthly payments. It’s out of reach for them right now.”
NAR predicts that home prices will continue to increase, despite the rising mortgage rates. “Year-over-year prices are up in 99% of the 180 markets we track,” Lautz noted. “We’ve seen a nearly 15% increase in home prices and 123 months of price gains. The market is still seeing a strong demand, but it’s leveling to a more normal pace.”
Nationwide, the median existing-home sales price exceeded $400,000 for the first time hitting $407,600, according to the most recent NAR housing market report.
However, for all-cash buyers, interest rates are not affecting their ability to buy. “Nearly 25% of buyers in the market are making all-cash purchases, so they’re not concerned about rising mortgage rates,” she said.
“There will be a drop in sales, which we’re already seeing. With a nearly all-time low of 1.16 million units for sale and a 2.6-month supply, there simply isn’t enough inventory to meet demand,” Lautz said.
NAR reported that total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 3.4% from April to a seasonally adjusted annual rate of 5.41 million in May. Year-over-year, sales receded 8.6% (5.92 million in May 2021).
Lautz noted there are several reasons for the inventory shortage:
- Underbuilding for more than 10 years.
- A massive generation hitting the real estate market.
- Increased cost of land.
- Building supply crisis.
- Labor shortage.
“All of these reasons make looking at innovative ways to meet housing demands,” she added. “Repurposing malls, hotels and office buildings may be a way to help meet future housing needs.”
Watch Dr. Lautz’s full presentation from Tuesday.