Making Sense of the Markets: What's Next for Home Values?

Home prices appreciated 15.7% annually in April, according to the FHFA. Meanwhile, interest rates remain at all-time lows.

The Covid-19 pandemic marked the beginning of a new era for the housing market. Overnight, a person’s home became the only safe space to work, eat, exercise, and relax. Guest rooms were turned into offices and garages to gyms. Suddenly, homes were the foundation of everyday life.

Simultaneously, record low interest rates led to massive demand for homes with few homeowners wanting to sell. The result has been a sharp increase in home values and an extremely competitive market.

So, what happens next? First off, appreciation of real estate close to 20% year-over-year in some areas (top dogs include San Diego, Seattle, and Phoenix) is not sustainable (World Property Journal). Expect those numbers to cool off once new home builds finish up and more homeowners decide to sell. Fannie Mae estimates that 2022 price growth will be 5.4%.

Interest rates are also expected to slowly inch upwards to pre-pandemic levels over the next few years. This could tip the affordability scale to favor renting as the cheaper option for those considering a purchase, yet another driver of less demand.

When considering the long-term health of the economy at-large, the biggest challenge we currently face is getting people back to work. As of 7/15/21, 3.24 million people reported being jobless, many of them collecting unemployment benefits without documenting their attempts to re-enter the workforce (MBS).

These benefits have helped millions of Americans survive financially during the pandemic, and there are, without question, people who still need it. However, there is also a palpable lack of motivation to get back to work.

As we approach the end of summer, we also approach the end of eviction moratoriums, pauses on student loan payments, and tighter restrictions for collecting unemployment benefits. Americans will have to get back to work and start paying for the relief they were given during the pandemic.

Market conditions and outlooks are always changing. Get in touch with us to get real-time updates on the housing market, interest rates, and lending guidelines.