A few months back I spoke on my podcast about what an increasing 30 year mortgage rate might do to the housing market. I noted that the sales will slow, and because buyers won’t be able to afford as much the sale price of houses will decrease over time. Or at the very least, we won’t see the rapid growth in prices that we have seen.
With the housing numbers for April now out, we are starting to see some changes in the market. Sales in April 2022 were roughly 6% lower than what they were in April 2021. What sales we are seeing is driven by the higher priced homes. Sales rose roughly 20% for homes priced between $500k-$700 and 16% for those homes $1 million and over. However, for homes priced between $100k-$250, we saw a decline of 29%.
This can be very telling of the impact that the increased 30-year mortgage rates are having. For higher net worth individuals, oftentimes they are buying in cash or taking a much smaller mortgage out to cover what they didn’t want to pay in cash. For those who are in the $100k-250 range, a mortgage is a major vehicle to have the ability to pay for that home. In turn, a higher mortgage rate will lower the ability or want of buyers to be active in the market.
The higher priced home sales are also having an impact in skewing the median price per home as that is still at $391,000, up nearly 15% from April 2021. There are two reasons for this. One being, like I mentioned, the higher priced home sales. The second reason is the lack of supply in the market.
With building materials going through inflationary and supply chain pressures, it isn’t easy to build homes to increase the supply to meet the demand. In turn, home sellers are still able to ask for a premium for their home due to the buyer having limited options.
As mortgage rates continue to increase and high priced home sales begin to plateau, we may see the median home sale price decrease over time.
Where we are at currently is in a market that is not kind to first time home buyers, or young buyers in general. We are seeing a market being dominated by higher net worth individuals. Which tends to lead itself to higher aged individuals and multiple time home buyers buying homes with primarily cash which is staying consistent with what we saw in 2021 as well.
As those buyers work their way out of the system, we will see the impact that the higher mortgage rates have on home buyers. Ultimately, long term we may find ourselves in a place where supply levels itself to match the demand in the market. Where if you were going to move you already did so, and if you want to now, you may be waiting due to mortgage rates and other inflation factors.
The real estate market isn’t in a bad place though. We aren’t looking at a 2008 scenario or anything close to it. We are sitting on more cash than ever as consumers. Mortgage lenders have been more prudent with who they have been administering loans to. And many home buyers were able to lock in a low mortgage rate as they have purchased over the past couple years. We will just have to see the real estate market normalize to healthy levels after the tremendous growth we have seen.