Today’s limited housing supply, rising home prices, and increasing mortgage rates could provide a glimmer of hope for home buyers, predicts an economist, because some home buyers will withdraw from the market.
“Rising rates may be a housing market headwind in 2022, but as some buyers pull back from the market due to affordability and supply constraints and as new construction adds more supply, house prices will moderate,” said First American Financial Corp. Chief Economist Mark Fleming on Wednesday.
This could provide for a more balanced housing market, described as “one where the gap between supply and demand is less than it was last year, when the historic shortage of supply, and strong demand that fueled by low mortgage rate — boosted house-buying power, resulted in a big gap between the two and very high house price appreciation,” Fleming said.
He says the Real House Price Index (RHPI) — a measure of house prices — increased 21.7% between December 2020 and December 2021.
“Even though household income increased 5% since December 2020 and boosted consumer house-buying power, it was not enough to offset the impact of higher mortgage rates and nominal prices on affordability,” Fleming said. “In the near term, affordability is likely to wane further, as mortgage rates are expected to continue to rise, and the pace of house price appreciation exceeds gains in household income.”
These obstacles, he said, could keep potential buyers and sellers out of the market.
Higher mortgage rates, Fleming said, dampen homeowners’ desire to sell their house, with them often asking the question, “'Why move out and move down?'”
Another moderating influence on the housing market is limited supply.
“The record low level of houses for sale makes it difficult to find a better, more attractive house to buy,” he said, forcing many homeowners who are also buyers not to sell because they fear they won’t be able to find a house they want to buy.
“The good news is that builders have been breaking ground on more new homes, which may alleviate some of the supply crunch and encourage existing buyers to move,” he said.
