Mortgage rates on 30-year fixed-rate loans are up from about 3.5% earlier this year to over 5.6%, and pros say they could get even higher (check out the lowest mortgage rates you could qualify for here) ). According to CoreLogic, house prices have also climbed steadily, by about 20% from March 2021 to March 2022.
That news will undoubtedly be welcomed with much cheer among aspiring home buyers. But we do have some good news for you: There are signs that competition in the housing market may be cooling, say pros.
Redfin reported that for the first time in six months, home buyer competition fell slightly in March 2022. Sixty-five percent of homes sold by Redfin brokers faced competition — or multiple offers — in March 2022, up from 67% in February. “I expect competition to continue to decline,” said Taylor Marr, the deputy chief economist at Redfin.
Marr cites multiple reasons for the change, including rising interest rates — the current average for a 30-year fixed-rate mortgage is more than 5.6% — the Federal Reserve’s policy of reducing inflation, baby boomers staying in homes in instead of moving to retirement communities and the conflict in Ukraine. “Homes are still selling above asking price, but the market is shifting,” Marr says. “If you replace the thermostat, it will take a while for it to cool down.”
For his part, Lawrence Yun, chief economist at the National Association of Realtors, recently told MarketWatch Picks that he, too, sees competition waning soon: “The combination of rising interest rates and rising house prices will push some potential buyers out of the market. market, which could lead to reduced competition after the summer buying season is over.”
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Marr agrees there will be less competition between listing buyers and more homes on the market by the end of the summer. However, he warns that certain areas that have become hot migration destinations, including cities like Tampa, Phoenix, Nashville and Atlanta, may still face high competition on listings. “There are still a lot of people moving to these places… even with the really high interest rates,” he says.
Decreasing competition at the end of the summer is also when Skylar Olsen, the chief economist at Tomo, predicts a cooling of the market. “We’re in a transition period,” she says of what’s happening now.
Despite signs that the housing market will cool down in the coming months, buyers should not expect to suddenly receive great offers. As MarketWatch Picks recently reported — after talks with five economists — home prices are unlikely to fall significantly. “House prices will continue to rise as there aren’t enough homes available to meet demand, but the combination of rising house prices and increased mortgage rates means fewer people can afford to buy,” Holden Lewis, home and mortgage expert at Nerdwallet, told us.
But just because economists predict interest rates will rise doesn’t mean buyers should force themselves into a bidding war just because they panic about interest rates. “If you find a unit that’s right for you, and you know it’s a place you’ll be staying for an extended period of time, then you need to move on,” she says. “But you don’t have to rush to lock in a rate.”