Even though inventory is increasing this year as the market moderates, supply is still low. For the last 14 years, the number of new construction homes has lagged significantly below the 50 year average.
The graph represents the years leading up to the housing crisis in 2008. As the graph shows, right before the crash, homebuilding increased significantly. That is because buyer demand was so high due to loose lending standards that enabled more people to qualify for a home loan.
The resulting oversupply of homes for sale led to prices dropping during the crash and some builders leaving the industry or closing their businesses – and that led to a long period of under-building of new homes.
Bottom Line: unless new home construction increases exponentially, experts project home price appreciation will continue. It will just happen at a more moderate pace as the housing market continues its shift back toward pre-pandemic levels.
As you know by now, the Federal Reserve increased the Federal Funds Rate (FFR) by another .75% last Wednesday. Here's what that really means: Inflation is the arch enemy to mortgage rates. When the Fed hikes rates, they are taking proactive steps needed to alleviate inflationary pressures. Mortgage rates usually decrease vs. increase when the fed raises the FFR. So, this Fed hike is actually good news for mortgage rates.Looking back over the year, each time the Fed has hiked rates in March, May, June, and now July, mortgage rates have either stabilized or improved after the announcement. While it is possible that mortgage rates may increase as new inflation numbers are released, it is important to note that Fed rate hikes do not generally translate to increased mortgage rates.
The frenzy the market saw during the pandemic is because there was more demand than homes for sale. That drove home prices up as buyers competed with one another for available homes. And while buyer demand has moderated today in response to higher mortgage rates, data tells us demand will continue to be driven by the large generation of millennials aging into their peak homebuying years Odeta Kushi, Deputy Chief Economist at First American, explains:
“. . . millennials continue to transition to their prime home-buying age and will remain the driving force in potential homeownership demand in the years ahead.”
That combination of millennial demand and low housing supply continues to put upward pressure on home prices. As Bankrate says:
“After all, supplies of homes for sale remain near record lows. And while a jump in mortgage rates has dampened demand somewhat, demand still outpaces supply, thanks to a combination of little new construction and strong household formation by large numbers of millennials.”
RECIPE OF THE MONTH:SHEET PAN SALMON
What I love about this recipe is you can substitute any vegetables you have which is a great way to use up produce that's been sitting around. The 1-pan concept makes for easy clean up. All in all, it's a winner! INGREDIENTS:
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