Housing market in flux in the third quarter of 2022 | The bank rate

House prices are on the rise again. Just not as much.

The national median price of an existing single-family home is $398,500, an 8.6% year-over-year increase, according to the National Association of Realtors’ Metropolitan Median Home Prices & Affordability report. (NAR) for the third quarter of 2022. .

That sounds high, but it actually represents a slowdown from the 14.2% rise in house prices in the previous quarter. In fact, home sales have slowed across the United States throughout 2022.

However, the cost of buying a home has actually increased much more, thanks to runaway inflation and rising interest rates. The monthly mortgage payment on this median-priced home with a 20% down payment is $1,840, according to the NAR — a jump of $614 (or 50%) from a year ago.

If you wanted to buy a typical single-family home in 2021, you needed an annual income of just $58,826 to qualify, according to the NAR. Now, a year later, you need an income of $88,331 – “almost $40,000 more than before the pandemic started in 2019,” the chief economist said. NAR, Lawrence Yun, in a statement accompanying the release of the report. That’s assuming you meet credit and other standards and can afford a down payment of nearly $80,000 (20% of the median home price).

In short, the national median price for existing single-family homes rose 8.6% year-over-year in the third quarter, while monthly payments rose 50%. Sales are slowing, as is the appreciation in home value. Yet homes are less affordable than ever.

The least we can say is that the housing market seems to be fluctuating somewhat.

Which housing markets are up and which are down?

Nationally, the median price of a single-family home fell from $367,100 at the end of Q3 2021 to $398,500 at the end of Q3 2022. Almost all (181 out of 185) metro areas tracked by the NAR recorded increases in house prices. But the amount of winnings decreases. Double-digit price increases occurred in 46 of these areas in Q3 2022, down drastically from 80% in Q2.

As always in real estate, it’s all about location, location, location. Among the major regions of the United States, the South recorded the largest share of existing single-family home sales (44%) and the largest year-over-year price appreciation (11.9%) in the third trimester. Prices rose 8.2% in the Northeast, 7.4% in the West and 6.6% in the Midwest.

Of the metro areas with the largest year-over-year price increases (all above 18%), seven of the top 10 were in Florida. The highest price growth on record was 23.8% in the North Port-Sarasota-Bradenton metro area.

Only four markets (of 185) lost median value between Q3 2021 and Q3 2022. The largest loss in value (down 4.5%) occurred in the Cumberland Market, Maryland-West Virginia.

Half of the 10 most expensive markets in the United States were in California. Only one of them, San Francisco-Oakland, lost value (-3.7%) but still managed to rank second with a median value of $1.3 million. The most expensive market was San Jose-Sunnyvale-Santa Clara, where the median home value is $1.7 million.

The housing affordability crisis

High house prices, coupled with rising interest rates in Q3 2022, have made housing unaffordable for many people. (As of November 16, 2022, the average benchmark 30-year fixed mortgage rate was 7.32%, up 15 basis points from the previous week.) A monthly mortgage payment of $1,840 on a typical home after a 20% down payment of $79,700 in the third quarter represents a 50% increase ($614) from a year ago. This represents $7,368 more in housing costs over one year.

According to the NAR report, families typically spend 25% of their income on mortgage payments, up from 17.2% a year ago. Spending more than 30% of your income on housing costs is considered “unaffordable”.

With higher monthly mortgage payments, it’s no surprise that people need more income to qualify for loans. And the smaller their down payment, the more income lenders want them to have. In terms of national averages:

20%	$88,331
ten%	$99,372
5%	$104,893

With limited inventory and interest rates hovering around 7%, first-time buyers are having a particularly tough time when it comes to affordability. According to the NAR report, a typical starter home worth $338,700 with a 10% down payment comes with a monthly mortgage payment of $1,808, nearly $600 per month more than it a year ago ($1,210). This may be part of the reason why first-time buyers made up just 26% of all homebuyers in 2022, down from 34% in 2021.

Should you wait to buy a house?

Despite modest signals of a “slowdown” in the Consumer Price Index (which rose 0.4% in September and October), Fannie’s October 2022 Home Buying Sentiment Index Mae reveals that only 16% of respondents believe now is the right time to buy, down from 19% in September. Only 37% think prices will go down.

Still, “I don’t know if inflation itself is the driving factor for home buyers and sellers,” notes Greg McBride, Bankrate’s chief financial analyst. “There is a lot of economic uncertainty and accessibility is quite tight. If we see a continued moderation in inflation, I’m not sure that changes the math much for buyers if we’re then in an environment of rising unemployment and broad economic weakness.

Whether you’re a first-time buyer or a homeowner trying to decide whether to sell now and buy later when prices have cooled, consider this: home prices rarely drop quickly. In other words, if you are trying to time the market, you may be waiting a long time.

Keep in mind that if you buy now, you can start building equity immediately and avoid future interest rate hikes. If you have good credit, enough savings for a down payment, and plan to stay in the house for several years, you may want to start house hunting, regardless of the real estate market. If you are weak in any of these areas, it may be best to wait.

Buying in the midst of an affordability shortage

Clearly, affordability is a major issue, but if you’ve determined that now is the best time to buy, there are tactics to alleviate some of the challenges.

• Get pre-approved for a mortgage loan so that you know your borrowing limit in advance. Keep in mind that the amount you are pre-approved for may not be the amount you can reasonably afford.
• Consider the season. Winter, the traditional “low season” for residential real estate, offers the best buying opportunities. You’ll face less competition and more motivated sellers, which often results in lower purchase prices.
• Buy an “as is” house or a house to renovate at a reduced price and put some sweat to get it in a dream house state. Of course, don’t bite off more than you can chew and be careful that the ‘superior repairer’ doesn’t turn into a ‘total rebuilder’.
• Move to a less expensive neighborhood. Real estate markets are very local in their prices. You might get more bang for your buck in certain neighborhoods, especially if they’re up-and-coming or further from downtown.
• Opt for an adjustable rate mortgage (ARM) instead of the usual 30-year fixed rate mortgage. It will have a lower interest rate and of course will vary with the market. The obvious caveat here is to make sure you can afford future interest rate hikes, including the biggest when resetting the mortgage.
• Look for a loan with a lower down payment. VA (if eligible) and FHA loans require less than the standard 20%. VA loans require no down payment and FHA loans can be obtained for as little as 3.5% down payment.
• Research down payment assistance programs. (PAD). PADs are generally for first-time buyers, although you may qualify as a first-time buyer if you haven’t owned a home in the past three years.

Overall, “the 30-year fixed rate mortgage is your best indicator of affordability,” McBride says. “Don’t rely on creative financing to get into the house on the assumption that you will refinance later. There’s no guarantee of lower rates or having enough equity by the time you need to refinance later. If you can afford the payments on a 30-year fixed rate mortgage, even if your income doesn’t increase any further, it gives you the confidence that you’re not biting off more than you can chew.