While home prices are currently skyrocketing, experts across various consultancies say the market will soon stall.
Over the past year, home purchase applications have decreased 52% according to data from Pantheon Macroeconomics. According to the Mortgage Broker’s Association, the market index was at its lowest level in 22 years. Additionally, a recent statement from consulting firm Capital Economics (CapEcon) Senior Economic Advisor Vicky Redwood outlines how home prices may soon decrease worldwide. In countries like New Zealand, Australia, Canada, the United Kingdom, and Sweden, home prices will shoot down anywhere from five to twenty percent, CapEcon reports. Redwood believes this is mainly due to central banks making an effort to tighten their monetary policy. This will come in the form of interest rate hikes, which traders are saying could be as high as 3.75% by next February.
Moreover, mortgage approvals are already starting to decrease as initial interest hikes are occurring, though the data isn’t showing those numbers yet, says Len Kiefer, Deputy Chief Economist at Freddie Mac. This paints a very different future for homebuyers than the landscape that the COVID house-buying frenzy produced over the past two years. While the average conventional mortgage in the U.S. hit a high this year of $500,000, that number is now “moderating” says Kiefer. He adds that examining the big picture is more important than looking at numbers from the past month; even if loan numbers are down now, they’re still over 25% higher than in January of 2020. And overall, the Case-Shiller Home Price Index shows that home prices are up 38% since February of 2020.
"I don't think that home sales are going to grind to a complete halt," Kiefer told MarketWatch. "They'll just slow. People will still be able to sell homes, but it may take you just a little bit longer than what it's been."