The last two years caught many of us off
guard—and not just because of the pandemic. They also ushered in the hottest
housing market on record, with home prices rising nationally by nearly 19% in
2021, driven primarily by low mortgage rates and a major supply shortage.1
In Muskegon County, prices in residential listings rose 12%. North Muskegon saw a high bump of 8% in the
spring and summer but ended even for the year. *
But while some had hoped 2022 would bring a
return to normalcy, the U.S. real estate market continues to boom, despite
rising interest rates and decreasing affordability.
So, what’s driving this persistent demand? And
is there an end in sight?
Here are three factors impacting the real estate market right now. Find out how
they could affect you if you’re a current homeowner or plan to buy or sell a
home this year.
RATES ARE RISING FASTER THAN EXPECTED
Over the past couple of years, homebuyers have
faced intense competition for new homes—in part due to historically low
mortgage rates that were a result of the Federal Reserve’s efforts to keep the
economy afloat during the COVID-19 pandemic.
However, in response to a concerning level of
inflation, the Fed is now reversing those efforts by raising the federal funds
rate. And as a result, mortgage rates are rising, as well. Few experts
predicted, though, that mortgage rates would go up as quickly as they have.
In January 2022, the Mortgage Bankers
Association projected rates would reach 4% by the end of this year.2
By mid-April, however, the average 30-year fixed mortgage rate had already hit
5%, up from around 3% just one year prior.3 On a $400,000 mortgage,
that 2% difference could translate into an additional $461 per monthly payment.
Since then, mortgage rates have continued on
an upward trend. So what impact are these rising rates having on demand? While
many buyers had hoped for a cooling effect, experts warn that may not be the
Ali Wolf, chief economist at housing market
research firm Zanda, told Fortune magazine,
"Rising mortgage rates are having a counterintuitive effect on the housing
market. Home shoppers are actually sprung into action in an attempt to buy a home
before mortgage rates rise any higher."4
Since inventory remains low, the resulting
“race” has kept the homebuying market highly competitive–at least for now.
What does it mean for you?
While current 30-year fixed mortgage rates
represent an increase over previous months, they remain well below the
historical average of 8%.5 As inflation across the economy
continues, the Fed is likely to raise rates further this year. Buyers should
act fast to secure a good mortgage rate. We have excellent relationships with
local lenders we have worked with through the years. We’d be happy to refer you to one who can
For sellers, speed is also of the essence. The
pool of potential buyers may shrink as mortgages become more expensive. Even if
you plan to finance your next home, you’ll want to act quickly to secure a
favorable rate for yourself. Contact us today to discuss your options.
PRICES KEEP CLIMBING
History shows that higher interest rates don’t
necessarily translate to lower home prices. In fact, home prices rose 5%
between 1980 and 1982, a period of significantly higher mortgage rates and
Forecasters expect that home prices will
continue to go up throughout 2022, though likely at a slower pace than the
18.8% increase of the last 12 months.4 Bank of America predicts that
prices will be up approximately 10% by the end of this year, while Fannie Mae
In addition to limited supply and a race to
beat rising mortgage rates, home values are also climbing because of positive
economic indicators, like low unemployment.8 Plus, rents are
soaring–up 17% from a year ago–which is prompting more first-time homebuyers to
enter the market.9 Add to that the continued popularity of remote
work, and it’s easy to see why property prices continue to surge.
However, it’s not all bad news for prospective
homebuyers. Economists expect that as mortgage rates rise, the rate of
appreciation will continue to taper, though the effect may be gradual.
“Eventually mortgage rates will slow down home
prices,” according to Ken Johnson, an economist at Florida Atlantic University
interviewed by Marketwatch.10
“We should not see rapid upticks in prices as mortgage rates rise.” Forecasters
agree—Fannie Mae expects price increases to slow to 4.2% in 2023.7
What does it mean for you?
While the pace of appreciation is likely to
decrease next year, home prices show no signs of going down. However, current
labor shortages are leading to higher salaries and better job opportunities for
many workers. You may find that your income growth outpaces home prices, making
homeownership more affordable for you in the future.
For homeowners, the outlook’s even brighter.
You could find yourself sitting on a nice pile of equity. Contact us for a free
home value assessment to find out.
REMAINS EXTREMELY LOW
As noted, one of the largest hurdles to
homeownership is a lack of inventory. According to a February 2022 report by
Realtor.com, there’s an expanding gap between household formation and home
construction, which has resulted in a nationwide shortage of 5.8 million
The origins of this shortage date back to the
2008 housing crisis, during which crashing home values led contractors to stop
building new properties—a trend that has not been fully reversed.12
That decline in home construction also
resulted in a decrease in the number of home building professionals, a trend
that was exacerbated by job losses during the COVID-19 pandemic. Now, many
builders are limited by their ability to find qualified labor.
Another major challenge is a staggering
increase in the cost of materials. Pandemic-related supply chain shortages have
been a significant driver, with home building material costs rising on average
20% on a year-over-year basis. The price of framing lumber alone has tripled
since August 2021.13
These trends add tens of thousands of dollars
to the cost of a typical home. Factors like a lack of buildable land in many
areas, restrictive zoning, and a shortage of developers are also contributing
to the issue.14
Most homebuying experts agree that the lack of
inventory is the primary factor driving rising housing prices and unprecedented
competition for homes. With available housing units near four-decade lows, the
end of the current housing boom is not yet in sight.15
What does it mean for you?
Prospective buyers should be prepared to
compete for a home, since low inventory can lead to multiple offers. You may
also need to expand your search parameters. If you’re ready to look, we’re
ready to help.
For sellers, the picture is rosier. In this
strong market, your home may be worth more than you realize. Contact us to find
out how much your home could sell for in today’s market.
HERE TO GUIDE YOU
While national real estate trends can provide
a “big picture” outlook, real estate is local. And as local market experts, we
can guide you through the ins and outs of our market and the local issues that
are likely to drive home values in your particular neighborhood.
If you’re considering buying or selling a
home, contact us now to schedule a free consultation. We can help you assess
your options and make the most of this unique real estate landscape.
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