Spring 2022 Housing Market Guide: How to Buy in a Hot Market

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Spring is always a hot time for housing – and this year will be no different, at least initially.

According to industry experts, house prices will rise, demand will be strong and bidding wars, unfortunately, will once again become the norm.

“I think the start of spring is looking just as hot, maybe even warmer than last year, which I know is hard to believe,” says Danielle Hale, chief economist at Realtor.com.

Those are strong words given last year’s sizzling market. With COVID-19 vaccines widely available and mortgage rates below 3%, buyers were in droves in the spring of 2021. Last April, almost two-thirds of offers faced a bidding war.

We are a year away from those days, but market conditions are largely the same. While mortgage rates are higher (by more than a percentage point), demand is still incredibly strong and homes are selling at record speeds – 10 days faster than a year ago.

It will likely feel like deja vu for buyers (many of whom are back for another try after missing out last year), but Hale and other experts say there may be cause for optimism. . In fact, that high-octane market we’ve become accustomed to may soon let off the accelerator pedal.

“I think as we move into spring and summer, there are a couple of reasons the intensity will drop,” Hale says.

Are you house hunting this spring? Here’s what the experts say to expect — and why there may be light at the end of this frantic home-buying tunnel.

Expect higher rates

The average rate for 30-year loans has jumped considerably since the start of the year. Towards the end of March, rates hit 4.42%, an increase of 1.31 percentage points since the start of 2022, according to mortgage buyer Freddie Mac.

Experts generally expect rates to continue to climb for the rest of the year. As Dale Baker, president of home loans at KeyBank, explains, “interest rates continue to rise and are expected to continue to rise as the Fed moves to fight inflation.”

At their March meeting, Federal Reserve policymakers voted to raise the federal funds rate for the first time in four years. Although this short-term rate does not have a direct impact on mortgage rates, it does influence investor behavior, which affects mortgage rates. After the Fed’s announcement, mortgage rates jumped sharply, crossing 4% for the first time since 2019.

“If you hold income constant, rates ranging from 3.2% to 5% represent a loss of $92,000 in purchasing power,” says Odeta Kushi, deputy chief economist at First American Financial Company. “Consumers will certainly feel this loss.”

However, it’s all about context. Although rates were higher than those seen by borrowers last year, they were actually record lows. And today’s average rate? This is quite low by historical standards. From 2000 to 2008, the average rate for 30-year loans ranged from 6% to over 8%. In the 1980s, it was well over 10%.

“Rates have risen recently and while this is something every buyer should be aware of, silver is still quite cheap compared to previous years,” says Coldwell Banker Warburg agent Steven Gottlieb.

Prepare for some fierce competition — at the start

In the near term, higher mortgage rates – and the promise of further rate increases on the horizon – will likely increase buyer demand.

“We’re seeing an increase in buying activity from buyers who were on the fence,” says Jerimiah Taylor, vice president of real estate and mortgages at real estate technology company OJO Labs. “Now that rates are rising, they’re starting to see how it’s affecting their affordability, so rather than continuing to wait and see, they’re actively entering the market to anticipate future rate increases.”

This spike in demand is easily visible on the ground. Around 69% of buyers are facing a bidding war these days – yet another record, according to property brokerage Redfin.

However, as rates continue to rise, some buyers will end up being overpriced. This could lead to a less competitive market later in the year.

“I expect it to be less intense towards the end of spring and summer,” says Hale. “Rising mortgage rates will significantly reduce the purchasing power of buyers, meaning they simply won’t be able to tackle homes with the same aggressiveness they could have before. I think that’s going to lead to a much less intense and frenetic housing market than what we’ve seen recently.

To be clear, experts don’t expect the market to turn around tomorrow. The supply of homes for sale is still very low and sellers will continue to have the upper hand for the foreseeable future. Freddie Mac estimates the market is about 4 million homes short of demand.

This shortage of inventory has led to an almost constant rise in home prices, only further reducing options for buyers. The median listing price hit $392,000 in February — the highest on record, according to Realtor.com. This is also a 14% increase over last year.

As Kushi explains, “It is possible that the affordability crisis that we have seen due to rising rates and continued supply shortages could eat up some of the full-throttle demand that we have. seen last year, but I still expect a very strong seller’s market this spring.”

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To start

Shop – and shop again

Experts generally recommend getting quotes from at least three to five mortgage lenders to ensure you get the best rate possible. In today’s rising rate environment, however, they say comparing your options is even more critical.

“Compare prices. I can’t say it enough,” Kushi says.

(Money’s list of top mortgage lenders can be a good place to start.)

Robert Heck, vice president of mortgages at Morty — a marketplace that helps buyers compare loan options, says he’s seen these wide spreads in action over the past few weeks.

“On March 17, the Freddie Mac benchmark was at 4.16%, while lenders in our market were still offering rates – without points – below 4%,” says Heck. “We might also see a greater disparity in mortgage pricing between lenders.”

Even half a percentage point can make a big difference in your loan costs. For example, on a $350,000 loan over 30 years, a rate of 4.5% would mean a monthly payment of $1,773. At a rate of 5%, that would be $1,878. Over the course of the loan, the higher rate would also mean paying nearly $38,000 in additional interest.

Steven Kaminski, head of residential lending at TD Bank, also says he expects more spread between lenders, especially as refinancing – which used to be the bulk of lenders’ business last year. last year – falls through and the competition for purchases gets tougher.

It’s not just a matter of tariffs, he says. In addition to comparing lenders on interest charges, it’s also important to weigh their loan options. TD Bank, for example, offers a loan product that offers $5,000 for a down payment and loans specifically designed for low-income borrowers.

“It’s down payment assistance programs like these and access to other resources that can impact budgets and potentially give buyers the boost they need to succeed in this market.” difficult,” says Kaminski.

Assess your budget and wishlist

Preparation is key in today’s market. For starters, get your priorities straight for the home. It can help you act quickly when a home comes on the market and be more responsive in negotiations.

“Know what you really want, what’s must-have, and what’s nice to have,” says Hale. “If you come to a situation where you have to choose and compromise, you’ve kind of already thought about it.”

You should also have your ducks in a row financially. It means getting pre-approved for a mortgage, which basically means that a lender has reviewed your finances and considered you a good candidate for a loan. It’s a smart way to show sellers that you’re serious about buying their property and, more importantly, that you’re a safe bet for financing.

“Being pre-approved for a mortgage is always an important step in the buying process, but it’s even more important in a competitive market,” says Heck. “A pre-approval letter gives you an idea of ​​what you can afford before you start looking and allows you to act quickly when you want to make an offer.”

Finally, knowing your budget – as well as the impact of a rate hike on it – is also essential. Hale calls this “rate proofing.”

“Get pre-approval of the current rate situation, but also think about what would happen if rates were to go up, say another quarter point,” Hale says. “Know what it would do to your monthly costs and how comfortable you are with it, so if rates go up you already know how you need to adjust accordingly.”

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