In a month, there are many things have changed and trends have started to shift again. Here's a look at what is happening to the market nationwide. 

THE BIG STORY

The landscape has changed. 

Quick Take:

• Fewer homes are coming to market, and demand for homes has cooled as interest rates jump to a 15-year high, indicating a short-term equilibrium after two years of rapidly falling inventory. 
• Economic concerns drive buying and selling decisions as inflation remains elevated and the continued Fed monetary policy brings us closer to a recession. 
• Supply of homes will continue to shape the market, and new construction will continue to decline with fewer buyers in the market and high costs to build.

Housing Market Hits the Brake

According to recent data and recent trends that we've been observing, home prices have reached their peak last June 2022. It's not likely to see another one as the year ends.

Given that there will still be movement in the data trends, but the bigger picture shows what we've all been thinking: home prices growth rate the past two years is not sustainable. 

Recall that during the pandemic, the Fed provided huge incentives to home buyers as part of its easy monetary policy by purchasing Mortgage-Backed Securities (MBS) plus dropping interest rates. 

MBS played a big part in home financing by allowing banks to bundle and sell mortgage loans, turning banks into an internediary between the financier and financial markets (investors). 

Banks get the fees, investors get the interest from the bundle of mortgage, so in many ways, the bank facilitates the loan but investors are the ones lending the money to buyers. 

The Fed became a huge investor in 2020 and 2021, doubling its MBS holdings to $2.7 trillion. 

Now, the Fed is not buying anymore and is in fact more likely to sell MBS, which would risk them taking huge losses. 

Home Price and Mortgage Rates

Mortgage rates also jumped dramatically this 2022, which sheds a light on the uniqueness of the housing market last 2021. 

Last September, the average 30-year mortgage rate was 3.01%, meaning that a $500,000 loan would cost $2,100 per month. (That same loan now costs $3,200 per month at 6.70%.)

This continual  rise in the interest rate caused more buyers with down payment to enter the market, dropping the inventory. Since home prices typically continue to increase, we saw buyers rushing to buy in an attempt to lock-in lower mortgage rates. This is a new phenomenon that seemed to not go away. 

Since the mid-1990s, home prices began to move like the other high-risk assets such as stocks, bonds, commodities and such. 

Supply and Demand of Homes

Demand for homes went down the past three months, which is expected in this season. Since sellers are also often buying as they sell, new listings are dropped and caused a decline in inventory. 

Inventory is still historically low. The market has shifted to softening demand and softening supply. 

According to the Mortgage Bankers Association (MBA), applications for mortgages are down to 29% year-over-year, which is not a surprise since the situation last 2021 was entirely different. There are a surge of demand in 2021 and plenty of buying incentives, both of which are not present this year.

Can we say that the market is finally cooling? Yes. But since it follows two of the hottest years since the mid-2000s, cooling means a healthier market for both buyers and sellers. 

SUMMARY

The U.S. housing market has become more nuanced over the past several months and depends more than ever on the region.

Some parts of the country are trending closer to balance, while some are moving deeper into a seller’s market.

Take a look at the Local Lowdown for in-depth coverage of East Bay.

As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.

In need of a realtor to buy or sell your home? Call 925-415-0835 today!