Today’s cooling housing market, the rise in mortgage rates, and mounting economic concerns have some people questioning: should I still buy a home this year? While it’s true this year has unique challenges for homebuyers, it’s important to factor the long-term benefits of homeownership into your decision.
Consider this: if you know people who bought a home 5, 10, or even 30 years ago, you’re probably going to have a hard time finding someone who regrets their decision. Why is that? The reason is tied to how you gain equity and wealth as home values grow with time.
The National Association of Realtors (NAR) explains:
“Home equity gains are built up through price appreciation and by paying off the mortgage through principal payments.”
Here’s a look at how just the home price appreciation piece can really add up over the years.
Home Price Growth Over Time
Even though home price appreciation has moderated this year, home values have still increased significantly in recent years. The map below uses data from the Federal Housing Finance Agency (FHFA) to show just how noteworthy those gains have been over the last five years.
If you look at the percent change in home prices, you can see home prices grew on average by almost 64% nationwide over that period.
That means a home’s value can increase substantially in a short time. And if you expand that time frame even more, the benefit of homeownership and the drastic gains you stand to make become even clearer (see map below):
The second map shows, nationwide, home prices appreciated by an average of over 290% over roughly a thirty-year span.
While home price growth varies by state and local area, the nationwide average tells you the typical homeowner who bought a house thirty years ago saw their home almost triple in value over that time. This is why homeowners who bought their homes years ago are still happy with their decision.
Even if home price appreciation eases as the market cools this year, experts say home prices are still expected to appreciate nationally in 2023. That means, in most markets, your home should grow in value over the next year even if the pace is slower than it was during the peak market frenzy when prices skyrocketed.
The alternative to buying a home is renting, and rental prices have been climbing for decades. So why rent and fight annual lease hikes for no long-term financial benefit? Instead, consider buying a home. It’s an investment in your future that could set you up for long-term gains.
If you own a home, your net worth likely just got a big boost thanks to rising home equity. Equity is the current value of your home minus what you owe on the loan. And today, based on recent home price appreciation, you’re building that equity far faster than you may expect – here’s how it works.
Because there’s an ongoing imbalance between the number of homes available for sale and the number of buyers looking to make a purchase, home prices are on the rise. That means your home is worth more in today’s market because it’s in high demand. As Patrick Dodd, President and CEO of CoreLogic, explains:
“Price growth is the key ingredient for the creation of home equity wealth. . . . This has led to the largest one-year gain in average home equity wealth for owners. . . .”
Basically, because your home value has likely climbed so much, your equity has increased too. According to the latest Homeowner Equity Insights from CoreLogic, the average homeowner’s equity has grown by $64,000 over the last 12 months.
While that’s the nationwide number, if you want to know what’s happening in your area, look at the map below. It breaks down the average year-over-year equity growth for each state using the data from CoreLogic.
The Opportunity Your Rising Home Equity Provides
In addition to building your overall net worth, equity can also help you achieve other goals like buying your next home. When you sell your current house, the equity you built up comes back to you in the sale. In a market where homeowners are gaining so much equity, it may be just what you need to cover a large portion – if not all – of the down payment on your next home.
So, if you’ve been holding off on selling or you’re worried about being priced out of your next home because of today’s ongoing home price appreciation, rest assured your equity can help fuel your move.
If you’re planning to make a move, the equity you’ve gained can make a big impact. To find out just how much equity you have in your current home and how you can use it to fuel your next purchase, let’s connect so you can get a professional equity assessment report on your house.
Experts in the real estate industry use a number of terms when they talk about what’s happening with home prices. And some of those words sound a bit similar but mean very different things. To help clarify what’s happening with home prices and where experts say they’re going, here’s a look at a few terms you may hear:
Appreciation is when home prices increase.
Depreciation is when home prices decrease.
Deceleration is when home prices continue to appreciate, but at a slower pace.
Where Home Prices Have Been in Recent Years
For starters, you’ve probably heard home prices have skyrocketed over the past two years, but homes were actually appreciating long before that. You might be surprised to learn that home prices have climbed for 122 consecutive months (see graph below):
As the graph shows, houses have gained value consistently over the past 10 consecutive years. But since 2020, the increase has been more dramatic as home price growth accelerated.
So why did home prices climb so much? It’s because there were more buyers than there were homes for sale. That imbalance put upward pressure on home prices because demand was high and supply was low.
Where Experts Say Home Prices Are Going
While this is helpful context, if you’re a buyer or seller in today’s market, you probably want to know what’s going to happen with home prices moving forward. Will they continue that same growth path or will home prices fall?
Experts are forecasting ongoing appreciation, just at a decelerated pace. In other words, prices will keep climbing, just not as fast as they have been. The graph below shows home price forecasts from seven industry leaders. None are calling for prices to fall (see graph below):
Mark Fleming, Chief Economist at First American,identifies a key reason why home prices won’t depreciate or drop:
“In today’s housing market, demand for homes continues to outpace supply, which is keeping the pressure on house prices, so don’t expect house prices to decline.”
And although housing supply is starting to tick up, it’s not enough to make home prices decline because there’s still a gap between the number of homes available for sale and the volume of buyers looking to make a purchase.
Terry Loebs, Founder of the research firm Pulsenomics, notes that most real estate experts and economists anticipate home prices will continue rising. As he puts it:
“With home values at record-high levels and avast majority of experts projecting additional price increases this year and beyond, home prices and expectations remain buoyant.”
If you’re following the news, all of the headlines about conditions in the current housing market may leave you with more questions than answers. Is the boom over? Is the market crashing or correcting? Here’s what you need to know.
The housing market is moderating compared to the last two years, but what everyone needs to remember is that the past two years were record-breaking in nearly every way. Record-low mortgage rates and millennials reaching peak homebuying years led to an influx of buyer demand. At the same time, there weren’t enough homes available to purchase thanks to many years of underbuilding and sellers who held off on listing their homes due to the health crisis.
This combination led to record-high demand and record-low supply, and that wasn’t going to be sustainable for the long term. The latest data shows early signs of a shift back to the market pace seen in the years leading up to the pandemic – not a crash nor a correction. As realtor.comsays:
“The housing market is at a turning point. . . . We’re starting to see signs of a new direction, . . .”
Home Showings Then and Now
The ShowingTime Showing Index tracks the traffic of home showings according to agents and brokers. It’s a good indication of buyer demand. Here’s a look at that data going back to 2019 (see graph below):
The 2019 numbers give a good baseline of pre-pandemic demand (shown in gray). As the graph indicates, home showings skyrocketed during the pandemic (shown in blue). And while current buyer demand has begun to moderate slightly based on the latest data (shown in green), showings are still above 2019 levels.
And since 2019 was such a strong year for the housing market, this helps show that the marketisn’t crashing – it’s just at a turning point that’s moving back toward more pre-pandemic levels.
Existing Home Sales Then and Now
Headlines are also talking about how existing home sales are declining, but perspective matters. Here’s a look at existing home sales going all the way back to 2019 using data from the National Association of Realtors (NAR) (see graph below):
Again, a similar story emerges. The pandemic numbers (shown in blue) beat the more typical year of 2019 home sales (shown in gray). And according to the latest projections for 2022 (shown in green), the market is on pace to close this year with more home sales than 2019 as well.
It’s important to compare today not to the abnormal pandemic years, but to the most recent normal year to show the current housing market is still strong. First Americansums it up like this:
“. . . today’s housing market looks a lot like the 2019 housing market, which was the strongest housing market in a decade at the time.”
If recent headlines are generating any concerns, look at a more typical year for perspective. The current market is not a crash or correction. It’s just a turning point toward more typical, pre-pandemic levels.
If you’re thinking of buying or selling a house, you’re at an exciting decision point. And anytime you make a big decision like that, one thing you should always consider is timing. So, what does the rest of the year hold for the housing market? Here’s what experts have to say.
The Number of Homes Available for Sale Is Likely To Grow
There are early signs housing inventory is starting to grow and experts say that should continue in the months ahead. According to Danielle Hale, Chief Economist at realtor.com:
“The gap between this year’s homes for sale and last year’s is one-fifth the size that it was at the beginning of the year. The catch up is likely to continue, . . . This growth will mean more options for shoppers than they’ve had in a while, even though inventory continues to lag pre-pandemic normal.”
As a buyer, having more options is welcome news. Just remember, housing supply is still low, so be ready to act fast and put in your best offer up front.
As a seller, your house may soon face more competition when other sellers list their homes. But the good news is, if you’re also buying your next home, having more options to choose from should make that move-up process easier.
Mortgage Rates Will Likely Continue To Respond to Inflationary Pressures
Experts also agree inflation should continue to drive up mortgage rates, albeit more moderately. Odeta Kushi, Deputy Chief Economist at First American, says:
“… ongoing inflationary pressure remains likely to push mortgage rates even higher in the months to come.”
As a buyer, work with trusted real estate professionals, including your lender, so you can learn how rising mortgage rate environments impact your purchasing power. It may make sense to buy now before it costs more to do so, if you’re ready.
As a seller, rising mortgage rates are motivating some homeowners to make a move up sooner rather than later. If you’re planning to buy your next home, talk to a trusted real estate advisor to decide how to time your move.
Home Prices Are Projected To Continue To Climb
Home prices are forecast to keep appreciating because there are still fewer homes for sale than there are buyers in the market. That said, experts agree the pace of that appreciation should moderate – but home prices won’t fall. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains:
“Prices throughout the country have surged for the better part of two years, including in the first quarter of 2022. . . Given the extremely low inventory, we’re unlikely to see price declines, but appreciation should slow in the coming months.”
As a buyer, continued home price appreciation means it’ll cost you more to buy the longer you wait. But it also gives you peace of mind that, once you do buy a home, it will likely grow in value. That makes it historically a good investment and a strong hedge against inflation
As a seller, price appreciation is great news for the value of your home. Again, lean on a professional to strike the right balance of the best conditions possible for both selling your house and buying your next one.