As a result of rising mortgage rates and a more aggressive strategy from the Fed, buyers continued to flock to the housing market during the early months of the year, fueling spring home-buying demand. However, listings of homes for sale for sale continued to rise over the years, and despite posting some seasonal growth, offered barely respite for frantic home buyers. Homebuyer competition and the bidding war peaked again, and the share of homes sold above asking prices hit last summer’s highs, with 6 out of 10 homes selling above asking prices in March.
Although widely anticipated, the list of homes for sale, unfortunately, does not look promising for 2022, especially given the rise in mortgage rates and the general feeling of being “locked in” by existing homeowners. While we may see some increase in new listings in out-migration markets (such as those in the Northeast and Northern regions of the Midwest), markets that have strong buyer demand (such as the Mountain West and the Sand States) should be considered as one. Experience is unlikely. equal relief.
Demand is expected to be impacted by rising interest rates and lack of inventory, yet there are many buyers who can afford the rising cost of home ownership and will therefore compete for limited properties.
Additionally, after declining in late 2021, we continue to see higher levels of investor activity in 2022. In March, investors made up 28% of single-family home purchases. Driven by the continued rise in single-family rents, investors were snapping these homes to convert to rentals. corelogic The single-family rent index reached another high in early 2022 and posted 13.1% annual growth in February.
Given competitive demand and historically low supply, home price growth – which gained more steam in 2022 – is likely to remain strong and continue to clock double-digit growth for the rest of the year. The CoreLogic Home Price Index forecast is now forecasting an annual average growth of 17% in the national index in 2022, up from 15% in 2021. On the other hand, a re-acceleration in home price growth, coupled with higher mortgage rates, will take a bite out of home sales activity. The previous forecast of 1% growth in home sales for 2022 has been revised down to 3%.
Higher mortgage rates will also continue to affect refinance originations. Again, with mortgage rates much higher than previously expected for the year, refinance origination volumes are expected to decline significantly, possibly more than 70% compared to 2021.
Refinancing incentives with rates higher than 5% have been largely removed, given that 90% of current outstanding mortgages have rates less than or equal to 5%. Nevertheless, the share of borrowers looking to cash out will continue to rise. This is due to homeowners tapping the record amount of home equity assets accumulated during double-digit home value growth in recent years.
The cash-out portion of total base dollar volume has reached the highest level since the 1990s, with the latest being 22% by March 2022. At the pre-Great Recession peak of 2004, the cash-out portion of volume origination reached 17.7%. As we mentioned earlier, refinance borrowers are likely to have slightly lower average credit scores as borrowers. Federal Housing Administration Debt refinance into traditional loans with a loan-to-value ratio of 80% or less to eliminate mortgage insurance premiums.
Additionally, these borrowers will also have a longer average loan tenure to keep monthly payments low. The availability of home equity wealth is likely to lead to an increase in home equity line of credit (HELOC) loans, which will allow owners to borrow against the available equity in their home without incurring a lower mortgage rate.
employment and income
Finally, strong employment and income growth have helped keep new crimes at very low levels. The 30-day crime rate remains at its lowest level in a generation, while foreclosure rates rose slightly in January as the foreclosure moratorium and CARES Act prohibition program ended. Still, at 0.24%, the foreclosure rate remains at half the average rate seen in the decade before the Great Recession. The areas that are likely to see an intensification of distress activities are the Gulf Coast and parts of the Northeast.
the road ahead
Taken together, 2022 will still be a strong year for housing, though more challenging than previously thought – especially for potential buyers who haven’t been able to increase monthly mortgage expenses due to higher mortgage rates and home prices. .
Summary of predictions:
- The interest rate on 30-year fixed-rate loans is expected to average 5% till the remainder of 2022.
- Home sales in 2022 will decline from a 16-year high in 2021.
- Single-family home price growth will remain strong, averaging 17% for the year.
- Fewer refinanced debt, but with larger cash-out shares and higher HELOCs.
- Loan defaults remain low, but with some increase in distress sales.
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