After the Easter-Passover holiday weekend the Massachusetts real estate market typically swings into high gear… or this year we should say even HIGHER gear, again!
Over the last year, the average U.S. homeowner saw a whopping $55,000 increase in their home equity!
How long can this appreciation rate last, especially with interest rates heading up?
Are we likely to see the real estate market collapse again?
This informative article with excerpts from our friends at Simplifying The Market discusses
the Future of Home Price Appreciation and What It Means for You.
Many people are wondering what will happen with home values over the next few years. Some are concerned that the recent run-up in home prices will lead to a situation similar to the housing crash 15 years ago.
However, experts say the market is totally different today. For example, Odeta Kushi, Deputy Chief Economist at First American, tweeted just last week on this issue:
“. . . We do need price appreciation to slow today (it’s not sustainable over the long run) but high price growth today is supported by fundamentals- short supply, lower rates & demographic demand. And we are in a much different & safer space: better credit quality, low DTI [Debt-To-Income] & tons of equity. Hence, a crash in prices is very unlikely.”
Price appreciation will slow from the double-digit levels the market has seen over the last few years; however, experts believe home values will not depreciate (where a home would lose value).
What most economists predict:
To this point, Pulsenomics just released the latest Home Price Expectation Survey – a survey of a national panel of over 100 economists, real estate experts, and investment and market strategists. It forecasts home prices will continue appreciating over the next five years. Below are the expected year-over-year rates of home price appreciation based on the average of all 100+ projections:
- 2022: 9%
- 2023: 4.74%
- 2024: 3.67%
- 2025: 3.41%
- 2026: 3.57%
Those responding to the survey believe home price appreciation will still be relatively high this year (though half of what it was last year), and then return to more normal levels over the next four years.
What Does This Mean for Buyers?
With a limited supply of homes available for sale and both prices and mortgage rates increasing, it can be a challenging market to navigate as a buyer, but buying a home sooner rather than later has its benefits. If you wait, you’ll pay more in the future. If you buy now, you’ll actually be in the position to make future price increases work for you because once you buy, those rising home prices will help you build your home’s value, and by extension, your own household wealth through home price appreciation and the equity you build as you pay down your mortgage.
As an example, let’s assume you purchased a $360,000 home in January of this year (the median price according to the National Association of Realtors rounded up to the nearest $10K). If you factor in the forecast for appreciation from the Home Price Expectation Survey, you could accumulate over $96,000 in household wealth over the next five years instead of increasing your landlord’s wealth.
What Does This Mean for Sellers?
To us at GBHT, It looks like we are getting close to the top of the market. The likelihood of rising interest rates should continue to diminish buyer’s ability to pay top dollar. We expect the bidding wars to quiet down a bit as we move past the current Spring and Summer market. As buyers renew their leases, we expect fewer buyers in the market next fall. While it may not totally eliminate the bidding wars that we have been seeing, it is likely to move us toward a more balanced market as sellers decide to sell while they perceive that the market is peaking. With more sellers and fewer buyers, we will get closer to a more balanced supply and demand.
Bottom Line
If you’re trying to decide whether to buy or sell now or wait, the key is knowing what’s expected to happen with home prices. Since real estate is more about people than property, we like to customize our advice to our client’s specific needs and plan ahead whenever possible. If you want to discuss your specific situation, we are here for you.
