As rates rise and shift the housing market, DoubleLJSquared explains why home buyers and owners will have to shift their expectations as well. WSJWhatsNow
Despite the high and increasing financial hurdles, they are finally taking the plunge. The pandemic has reshaped attitudes about owning a home, while high savings and a strong job market are giving people the wherewithal to buy. It isn’t as if the housing market hasn’t weathered a significant increase in rates before. In the 1970s mortgage rates doubled. And yet, over the decade ended in 1979, the number of total homes rose by 25%—then the result of a boomer push for homeownership.
But with higher rates, the prices people are willing to pay for homes could come under pressure. While it is rare for prices to fall nationally—the housing bust that helped precipitate the 2008-2009 financial crisis was a rare exception—there have been periods when prices haven’t kept up with inflation, which in effect made homes more affordable over time.
U.S. home prices hit an all-time high in 2021, but those increases are expected to slow in 2022 thanks to a number of economic factors. Here’s what’s driving the housing market and what that could mean for prospective buyers and sellers. Photo: George Frey/Bloomberg NewsThe search for affordability could create shifts in what types of homes people buy and where they buy them. Some of these shifts are already under way. Existing-home sales in February were down 8.
The low number of available homes for sale—in February there were only enough existing homes on the market for 1.7 months of sales compared with an already-low 3.1 months two years earlier—should continue to provide a. But they might benefit from focusing more of their efforts on building smaller homes in more-affordable areas—especially if more people who already own their homes are forced to ditch the low mortgage rates they have locked in.
Higher interest rates might not lead people to give up on their dreams of owning a home, but they could lower expectations on what kind of home that is.
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