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August 2022

Nationwide real estate market to ease despite high home prices

Even though national GDP contracted for the second quarter in a row and home sales have fallen for five straight months, property prices are likely to continue growing because of low inventory, Lawrence Yun, chief economist for the National Association of REALTORS®, said Wednesday during NAR's quarterly Real Estate Forecast Summit. Yun offered his economic and housing market predictions for the remainder of this year and into 2023 at the event.

One of the most unusual aspects of the current economy is the labor market, Yun said. There were more job openings than unemployed people in May-with the difference being nearly two to one, according to Bureau of Labor Statistics data. Construction job openings were at a record high in January, and these unfilled jobs point to a potential slowdown in the housing market, Yun said.

Both existing-home sales and pending home sales have been falling or stagnant for months, NAR data shows. Rising mortgage rates have combined with low inventory to exert downward pressure on the market. "Closing activity will continue to sink even more," said Yun. "Some [potential home buyers] don't want to pay higher monthly rates. Others can't."

There are bright spots in the market, such as gradually increasing inventory, which is good news for consumers. "They no longer have to make an offer after seeing only one [house]," Yun said. "They can see three or four. It's returning to a normal process."

Despite some homes with high list prices beginning to languish on the market, the overall lack of inventory is still leading to price gains. "Even after reductions, prices are still higher compared to one year ago and much higher compared to before the pandemic," Yun added.

Though the Federal Reserve is expected to hike interest rates several more times this year, Yun said mortgage rates won't rise much further because lenders have already priced in the potential increases. This can mean increased opportunity for consumers. "We may be topping out independent of what the Fed will do," Yun said. "Rates will go a little up and a little down. It may be a good idea to lock in when the rates are down."

He also noted that foreign investment in U.S. real estate is still well short of pre-pandemic levels but predicted that international interest is likely to increase as travel restrictions ease.

Finally, Yun predicted that in 2022, total home sales will be down 13% from the previous year, home prices will be up 11% and total dollar volume will be down 2%. For 2023, he predicted no increase in home sales, a 2% hike in prices and a 2% increase in dollar volume.

What housing pros predict will happen in the housing market this year

  • Mortgage rates could continue to rise - but it depends on the economy
  • Home price appreciation will cool due to the housing shortage, home prices will continue to rise in the following months. Although inventory is improving, it will remain tight as home builders have cut down on single-family home production.
  • But overall home prices will still rise as asking prices are coming down from moonshot levels as prospective buyers pull back. Selling prices will level out as the market cools but this cooling is just a return to the type of balanced market that has been absent the past couple of years.
  • Demand is cooling and is pulling back at today's prices, and home shoppers are fewer and farther between than they've been for much of the pandemic. That's cooling the market and pushing it toward the rebalancing it needs. Very expensive markets, where home buyers are already on the edge when it comes to affordability and therefore more sensitive to mortgage rate changes.

    June vs July Stats for Santa Cruz, Monterey & the Bay Area

    Comments: As expected, new listings, sold properties, median price and list to sale price ratio are all down in all cities for all three counties. Days on market were down in Santa Cruz and Monterey counties but inching up in Santa Clara County which is always the indicator of what's to come. (Display of MLS data is deemed reliable but is not guaranteed accurate by the MLS)

    22jun jul