2022 Housing Market Trends

Home affordability improved slightly in November, according to the latest Zillow Market Report. The average rent also fell, bringing down the cost of shelter.

However, buying a home still remains a challenge. Even though prices have retreated from their record highs in some markets, they remain well above pre-pandemic prices.

Still, the improvement is welcome for people hoping to purchase a home. As previously reported, the average 30-year fixed-rate mortgage in November dropped from over 7% to around 6.5%. Zillow said that decline reduced the average cost of a mortgage by nearly 5%.

While home prices remain stubbornly high in some markets they are falling in others. Zillow put the value of the average home at $357,733, 0.2% less than in October and down 0.5% from June’s peak.

Combined with the drop in mortgage rates, lower home prices brought down the average monthly house payment for the first time since July. Industry experts say it’s unlikely there will be a big increase in affordability anytime soon but the latest trend, caused by a huge drop in demand, is a positive sign.

"The housing market entered a deep freeze this November as buyers paused their purchasing plans, likely till after New Year's in many cases," said Zillow’s senior economist Jeff Tucker. "The two big questions are whether mortgage rates will continue to decline and whether that will be enough to bring buyers back in time for the spring selling season. In the meantime, those on the prowl for a house will benefit from motivated sellers, unusual bargains and a welcome lack of competition."

Expensive markets saw the biggest declines

Of course, all real estate is local. While the national drop in average home values has been small, the nation’s most expensive markets, and those seeing the biggest increases during the pandemic, have experienced the steepest decline in home value.

The average home price is down 10.6% in San Jose, Calif.; 10.4% in Austin; 9.5%  in San Francisco; and 8.1% in Phoenix.

The positive trend in real estate also extended to the rental market last month. Average rents fell 0.4% from October to November, the largest one-month decline in the seven-year history of the Zillow Observed Rent Index. 

After peaking during the summer, average rents fell 0.1% in October. Zillow says that decisively closes the door on a period of nearly two years of above-average monthly rent increases that began in the first year of the pandemic.

If you’re moving someplace and need temporary housing or thinking about renting a home or an apartment where you are, proceed with caution. Rental scams are sweeping the U.S.

The number of rental scams has grown more than 60% in the last year, with victims reporting losses of more than $350 million.

This is not your basic confidence scam either. These bad actors realize that people looking to rent want to move fast, so they surgically design their scams to suck in as many potential victims as they can.

In one recent case, WLS-TV reported that a woman’s home in Aurora Ill. was listed for rent without her knowledge or permission, and led to a throng of “renters” showing up on her front stoop trying to get inside. She said some of those had already paid thousands of dollars to rent her home.

Another couple in Austin Texas was so thrilled that they found the perfect place – one that came with a hard-to-find doggy door for their pooch – they wasted no time in sending the deposit and first month's rent. Unfortunately, the scammers wasted no time in taking that $5,200 check and high-tailing it out of town. 

Unfortunately for Zillow, scammers are using the real estate platform to list fake rental properties. Fortunately, however, Zillow has been very proactive in trying to take down fake listings and warn consumers about what telltale signs they should be looking for.

Ask these five questions before renting any place

Zillow says that there are five questions that anyone looking to rent should ask themselves to try and detect whether a property or seller is for real.

1. Does the monthly rent seem too good to be true?

“One clue to a scam is a rental price that’s too low for the neighborhood. If you see an affordable apartment in your dream location and the rent is way below what others are charging, there may be a problem,” the company warns, adding that first-time renters and long-distance movers are more often than not prime targets because the scammer realizes time is of the essence and pushes things like “rare opportunity.”

To avoid the “too good to be true” scam, research rental prices in the area for the size of the unit and amenities you’re looking for. Zillow also suggests using its Rent Zestimate on the listing as a baseline for what you might expect to pay for the rental. 

“If you’re interested in a listing where the rental price is unexpectedly low, ask the property manager or landlord upfront why the rent is so low for the area, and keep copies of all your communication.”

2. Is this listing for real?

Zillow says that if you see the same listing showing up multiple times, but under a different name, that’s a clue it may be a scam. 

Search listings you’re interested in checking out to see if they appear elsewhere online – Craigslist, local rental websites, etc. 

“If the property is listed on major rental listings sites, make sure the listing contains the same contact information, landlord name, address and other high-level details,” Zillow suggests.

3. How does the rental agent want to be paid?

If a rental agent, landlord or property manager wants to be paid in cash, head for the hills with that money tucked in your pocket. If they ask that the money be wired? Don’t do it. Money order? Don’t do that, either. Using either of these methods is the same as sending cash and you’ll never be able to trace it. 

“Typically the best way to make any type of rental payment is through electronic deposit from your bank account,” Zillow says. “You can set this up with your bank. This way, there’s a clear, easy-to-access record of where your money went. You can also use a credit card (subject to interest) or a paper check (if you still have some). Larger, modern properties often have a website with a resident portal where you pay your rent online.”

4. Are you being asked to provide personal information before viewing the property?

If a property owner says that you need to fill out a bunch of forms before you ever see the place – things like Social Security numbers, date of birth, or even a credit card number for some sort of deposit, you should insist that you see the place in person so you can identify that it actually exists.

If you’re unable to view the rental in person, request an online tour or consider perhaps asking a real estate agent or friend to view it on your behalf.

“If the landlord claims they’re unavailable to show the property, or conditions the showing on you providing sensitive personal information in advance, this may be a red flag,” Zillow said.

5. Virtual tour offered?

If you’re not in the same city where the rental property you’re looking at is, and are forced to do a “virtual tour,” be careful – those pictures may look nice, but they may not be real or the building may not actually be up for rent. 

If you’re searching for rentals remotely and can’t visit an apartment or house yourself, ask someone you trust, such as a friend, agent or a fellow employee if you’re moving for a job offer, to visit in person for you. Zillow suggests using its Rental Walkthrough Checklist to thoroughly vet the rental before you commit to a lease.

“If you feel you need to do further research on the property, the local assessor’s office or county clerk can provide property records. Verify all names, websites and phone numbers in the listing. If the property manager has a website, read reviews to spot any potential red flags ahead of time,” the company suggests.

Home mortgage rates, whose meteoric rise earlier this year brought the housing market to a standstill, have begun to fall.

In its weekly update the Mortgage Bankers Association (MBA) reports the average 30-year, fixed-rate mortgage fell to 6.49% this week, down from 6.67% the previous week. The rate is below 6.5% for the first time in months.

But is it enough to revive home sales? Probably not yet, though mortgage applications for a home purchase rose 4% from the previous week. But compared to the same week in 2021, applications were down 41%.

 “The economy here and abroad is weakening, which should lead to slower inflation and allow the Fed to slow the pace of rate hikes,” said Joel Kan, MBA’s vice president and deputy chief economist. “Purchase activity increased slightly after adjusting for the Thanksgiving holiday, but the decline in rates was still not enough to bring back refinance activity. Refinance applications fell another 13%, and the refinance share of applications was at 26%. Both measures were at their lowest levels since 2000.”

Low rates led to record-high home prices

Record-low mortgage rates a year ago – and near record-low rates over the previous five years – led to the record rise in home prices. With a 2.9% mortgage rate, many buyers could afford a $500,000 home. When the mortgage rate hit 7%, many fewer could.

The National Association of Realtors (NAR) reports home affordability fell in September as the monthly mortgage payment climbed 57.8% and median family income rose by 3.9%. According to NAR, a mortgage is affordable if the mortgage payment – principal and interest – amounts to 25% or less of the family's income.

While the slow pace of home buying has started to bring down home prices, Business Insider predicts it won’t do much to improve affordability in 2023. Even if there is a 20% decline in home prices, buyers would still face steep monthly payments as long as mortgage rates remain at present levels.

Buyers need a big drop in mortgage rates

If a $500,000 home falls to $400,000, the principal and interest payment at 6.5%, with 20% down, is $2,023 – and that doesn’t include taxes and insurance. 

If the rate declines to 5.5%, buying the same home would cost $1,817 a month. Lowering the rate to 4.5% would produce a monthly payment of $1,621. That may be the interest rate at which affordability sharply improves.

That said, many real estate professionals say dramatic decreases in both home prices and interest rates simply aren’t in the cards next year. Realtor.com predicts mortgage rates will average over 7% for all of 2023 and home prices, instead of falling 20%, may go up slightly because of the shortage of homes for sale.

“It’s going to be a tough year for homebuyers, home sellers, and the overall housing market,” said Realtor.com Chief Economist Danielle Hale. But “we’re going to take some steps toward a better balance between buyers and sellers.”

Buying a home is more costly than it has been in a decade. Not only have prices risen dramatically since the start of the COVID-19 pandemic, but interest rates are also rising.

Some of those costs are frontloaded into the first year of homeownership. But that first year costs less in some cities than in others. People contemplating a move to a more affordable city might do well to consider those cities that are kindest to the housing budget.

Analysts at SmartAsset, a financial website, compared 20 of America’s major cities, looking at five metrics. They considered a 20% down payment on the median-valued home, the average closing costs, monthly mortgage payment, property taxes, and homeowners insurance. 

Indianapolis ranks first in terms of first-year affordability. The median home price is $220,500 – more than $100,000 below the national average. Closing costs average around $3,000. Property taxes are also low.

It’s followed by another Midwestern city, Columbus, Ohio. The median home price is $236,000 and the average closing costs are second-lowest in the study at just $3,541.

Philadelphia ranks third. While median home prices are higher than in Indianapolis and Columbus,  upfront costs to get into a home are around $55,016. The City of Brotherly Love might rank higher but its average closing costs of more than $8,000 are the second-highest in the study.

Number four and five on the list are both major cities in the South. Houston ranks fourth with an affordable median home value of  $261,500. Upfront costs, including closing costs, averaged $56,400 in 2022. First-year housing costs average $79,000.

Rounding out the top five is Jacksonville, Fla. Buying a home there will cost $85,631 in the first full year of homeownership, including $64,062 in upfront costs and $21,569 in annual recurring expenses.

California cities are a lot more expensive

Those five housing markets are huge bargains compared to the most expensive cities. The top four most expensive cities in the first year are all in California – San Francisco, San Jose, Los Angeles, and San Diego.

That said, no city escaped first-year homeownership costs increases, which, according to SmartAssets, increased dramatically this year. The average monthly mortgage payment exceeds $1,000 in all 20 cities in the study. 

Home prices and mortgage rates are joined at the hip. When both go up, home sales fall. That appears to be happening now with benefits for buyers.

A new report from real estate marketplace Zillow found that home prices have fallen sharply from their record highs reached earlier this year. High mortgage rates have simply made a home purchase less affordable for millions of people.

"Home prices in October remained in suspended animation as more buyers, but especially sellers, took a wait-and-see approach to market conditions," said Skylar Olsen, chief economist at Zillow. "Fewer home sales is the hallmark of a housing market lull, but right now potential sellers sensitive to losing their historically low mortgage rates have as much, if not more, of a reason to wait for a robust spring season and hope for mortgage rate relief.”

A report from Freddie Mac suggests that relief is on the way. The company, chartered by Congress to supply mortgage funds, reports the average rate on a 30-year fixed-rate mortgage fell from 7.08% last week to 6.61% this week, the largest one-week decline in 41 years.

‘Long road ahead’

“Mortgage rates tumbled this week due to incoming data that suggests inflation may have peaked,” said Sam Khater, Freddie Mac’s chief economist. “While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market.”

But the improvement in the environment for buyers is significant. The difference in monthly payments on a $300,000 mortgage is $200 a month when the mortgage rate declines by 1%.

That said, rates will need to keep falling to encourage both buyers and sellers to return to the housing market. Khater says it’s hard to tell when that might happen.

“Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact,” he said.

Monthly payments are still elevated

According to Zillow, the monthly mortgage payment on the purchase of a typical house, even when putting 20% down, was $1,910 in October. That's up 77% over October 2021 and a 107% increase — nearly $1,000 — from 2019. 

And that’s just the principal and interest. Taxes and insurance are also part of the monthly payment, stretching affordability for many to the brink.

While prices should continue to fall as buyers sit on the sidelines, Zillow notes prices may not fall that fast. Home inventory levels remain tight as fewer current homeowners put their homes on the market.

Since many current owners have mortgage rates between 3% and 4% they may be reluctant to sell and purchase another home that has a mortgage rate two or three points higher.

A new report from Realtor.com shows home listings increased 33% in October over October 2021. The increase in inventory is not because more people are selling but because fewer are buying.

The housing market has come to a near standstill in the last few months, leading some to speculate it could be headed for a “crash,” an undefined state in which home values fall.

It’s happened before, as recently as 2009. Then, thousands of homes went into foreclosure and millions of homeowners found themselves owing more than their homes were worth.

Could it happen again? Most housing experts point out that today’s market woes are very different from 13 years ago.

Today, the market has stalled for one big reason – rising mortgage rates. During the COVID-19 pandemic, the housing market exploded. Prices surged because demand far outweighed supply.

Low interest rates fueled record home prices

People with good jobs could afford to pay record-high prices for a home because the interest rate was 3% or less, providing an affordable monthly payment. But when the average 30-year fixed-rate mortgage rate surpassed 7%, as it did last month, then the monthly payment was hundreds of dollars higher, meaning many people who would like to buy a home can no longer afford to.

As a result, home prices have already fallen from their record highs reached in June. But Alex Platt, principal agent with the Platt Group, part of Compass Real Estate in Boca Raton, Fla., says that is far from a “crash.”

“Look, no one knows what’s going to happen,” Platt recently told us. “But I don’t think there’s going to be a big ‘crash’ coming. Could there be a correction, sure? But prices nearly doubled in the last two years. So even if prices come down 10 or 15%, the market is still up.”

But what about people who purchased homes last year, at the very top of the market? Could they trigger a crash, much like they did in 2009? Not really, experts say.

Most people who purchased homes in 2021 got a mortgage rate of 3% or less. As long as they stay employed they should be able to easily swing the monthly mortgage payment.

What's different this time?

So how was 2009 different? At that time, the mortgage industry was approving loans to just about anyone, whether they could afford the home or not. The lender sold the mortgage to Wall Street investment banks within days so lenders didn’t care.

Many of these buyers put no money down and took out subprime mortgages, which had a low “teaser” interest rate for the first year or two before the rate jumped to double-digits. When that happened, millions of those homes went into foreclosure, dragging home values down with them. It was the wave of foreclosures that triggered the crash, flooding the market with repossessed homes.

Today, very few homes are in danger of default, even those whose values are now lower than the purchase price. Unlike more than a decade ago, most of today’s buyers made significant down payments – of up to 20% – and still have some equity even if prices go down.

People who bought homes at the top of the market may feel like there’s a housing market crash, at least for a while. But most real estate economists predict the market will quickly right itself if prices fall too low.

Realtor.com notes that, unlike in 2009, the U.S. still has a severe housing shortage. Even with rising interest rates, demand is expected to exceed – or at least keep up with – the supply of homes.

Rising mortgage rates are making homes much less affordable in the nation’s largest housing markets, prompting first-time buyers to get creative. Buyers in these high-priced markets are expanding their horizons.

A study by ConsumerAffairs found that 81% of prospective homebuyers were considering buying a “second home” first, while continuing to rent their primary residence. A few said they would use their purchase as a vacation getaway but most said they would try to generate revenue from it.

The study found that the youngest cohort of potential buyers, Gen Z, is the most likely to consider this move. Eighty-seven percent of all first-time buyers said they believed buying an investment property would enable them to purchase their primary residence within three years.

The favorite region of the U.S. for second home shopping is the South Central region, selected by 48% of those in the study. The South Atlantic region was closed behind at 43%. Those areas tend to have the lowest median home prices.

Growing trend

Real estate professionals say they have seen evidence of this trend. Rose Ciardiello, an agent with William Raveis Real Estate, a Connecticut-based firm, says the trend actually began early in the COVID-19 pandemic and continues.

“Some of these buyers are renting out their ‘second’ homes while they are occupying rentals in the cities, and others keeping it unoccupied so they can escape whenever they wish,” Ciardiello recently told us. “Some will experiment with both – renting out their home while they’re not there, but keep it on reserve for specific weeks of the year so they can enjoy themselves.”

The ConsumerAffairs study found declining home affordability in the most expensive markets may be contributing to the trend. Nearly all first-time buyers – 92% – said they could not afford a mortgage in this current interest rate environment – even though most earned good salaries – prompting them to consider buying elsewhere.

On second thought, maybe we'll just move

Not only buying but moving. Among Gen Z respondents, 79% said they are considering relocating to a more affordable state or city so they can afford to purchase a home as a primary residence. 

Other generations are also considering packing up. More than 60% of millennials and Gen X are considering moves and even baby boomers, nearing or in retirement, are looking for greener pastures.

“To me, one of the most surprising elements of the study on second homes was that 43% of baby boomers we surveyed said they planned to move to a cheaper state to afford a home,” said Cassidy McCants, deputy editor at ConsumerAffairs.

“Sixty-four percent of all respondents, including Gen Z, millennials and Gen X, said the same but the fact that such a significant percentage of the older population is still struggling to afford a home indicates how much is left to be desired across the board in the current housing market. Boomers we interviewed also said they needed to save $20,557, on average in order to buy their first home — and that they were willing to go $1,976 over their monthly budget to afford a mortgage.” 

According to the National Association of Realtors (NAR), the average mortgage payment in Los Angeles County is now $3,510, up from $2,590 12 months ago. In contrast, the average monthly mortgage payment in Hamilton County, Ohio (Cincinnati) is $1,034, up from $705 a year ago.

There appear to be plenty of affordable markets to choose from. The NAR data show that 40.7% of U.S. counties have median home prices of $150,000 or less.

Rapidly rising mortgage rates, coupled with near-record-high home prices, have priced many buyers out of the housing market. But there are signs in various industry reports that the result of high mortgage rates could improve affordability in the months ahead.

With fewer buyers, the shortage of available homes that plagued buyers over the last two years is finally moving in the other direction. RE/MAX, a national brokerage firm, reports the inventory of homes grew 3.9% in September over August and is up 30.4% year-over-year. The number of homes on the market is growing, even though new listings were down 7.6% last month.

"After a sustained period of quick sales that kept the housing cupboard relatively bare, a supply of two months presents a lot more options for homebuyers," said Nick Bailey, RE/MAX president and CEO. "For a long time, six months of inventory was the standard for a balanced market that favored buyers and sellers evenly. Now, with the evolution of technology and various changes in homebuying patterns, the new standard is becoming four months. We're halfway to that level, and the market is making steady progress toward balance.” 

Competition helps buyers

When there is an ample supply of available homes, sellers face more competition and buyers have more choices. When that happens, home prices usually soften.

A new report from real estate broker Redfin shows that’s already happening. After analyzing nationwide listing prices, the broker says 7.9% of sellers dropped their price during the four-week period ending Oct.9. That’s about double the rate from last year as the market has shifted at a near-record pace.

“Prospective homebuyers and sellers barely had time to get used to 5.5% mortgage rates over the summer before they rose to nearly 7% this month,”  said Redfin Deputy Chief Economist Taylor Marr. “The second sharp rate increase this year, together with nerves about inflation and the direction of the economy,  is dragging home-sale activity down further than it was over the summer and pushing homebuyer sentiment down near its all-time low.”

At long as mortgage rates remain at their present levels there is little benefit for buyers. For many, mortgage payments on the median-priced home are still out of reach. But rates may not remain in that range forever.

The outlook for mortgage rates

Rates could move even higher between now and the end of the year, but some in the industry think buyers could see some relief. The Mortgage Bankers Association (MBA) predicts rates could average around 5.5% by the end of December.

Rising mortgage rates are the indirect result of the Federal Reserve’s aggressive policy to squash inflation – specifically to slow the growth in home prices. That policy has contributed to a sharp rise in the yield on the Treasury’s 10-year bond – which directly influences mortgage rates. When the Fed declares victory and returns to a normal credit policy, mortgage rates could come back down.

With a lower median home price and mortgage rates in the 4% range, affordability conditions could improve to the point that people currently priced out of the housing market could see more choices and affordable monthly payments.

This month has produced no relief for the declining number of people who are considering the purchase of a home. While it’s true that prices have softened a bit, mortgage rates rose to their highest level since 2006 last week.

In its weekly update, the Mortgage Bankers Association (MBA) reported a 2% drop in mortgage applications in just one week. Rising mortgage rates are likely the reason.

“Mortgage rates moved higher once again during the first week of the fourth quarter of 2022, with the 30-year conforming rate reaching 6.81%, the highest level since 2006,” said Mike Fratantoni, MBA’s senior vice president and chief economist. 

In fact, mortgage rates increased across all product types in MBA’s survey, with the largest, a 20-basis-point increase, for 5-year ARM loans. Adjustable rate mortgages (ARM) have suddenly become more popular because the initial rate is typically lower than the rate on a fixed rate mortgage. The downside is lenders can raise the rate at specific periods over the life of the loan.

Tougher qualification standards

Not only are rising mortgage rates pressing would-be buyers, but it’s also now harder to qualify for a mortgage. Joel Kan, MBA’s associate vice president of Economic and Industry Forecasting, says lenders are making less money available for mortgages and have become more choosy over who gets it.

“With the likelihood of a weakening economy, which would lead to an increase in delinquencies, there was a smaller appetite for lower credit score and high LTV (loan to value) loan programs, along with a reduction in government streamline refinance programs,” Kan said. “As mortgage rates have more than doubled over the past year, resulting in a drop in refinance activity, lenders have worked to reduce excess capacity and costs by eliminating underutilized loan programs.”

Kan also said the government credit availability index has declined in seven of the last eight months to its lowest level since April 2013.

With fewer people able to purchase homes, more have to continue renting. That has pushed average rent prices to record levels this year and has been one of the largest contributors to inflation.

When the Bureau of Labor Statistics releases the September Consumer Price Index (CPI), many economists expect that the data will show that trend is continuing.

In a normal housing market, people shopping for their first home have a lot of choices. There are many neighborhoods, mostly older, with modest houses of between 1,000 and 1,500 square feet that sell for well below the median home price.

These homes still exist but in recent years fewer of them have come up for sale. When they do they are quickly snatched up, sometimes by investors who turn them into rental properties.

In its 2022 survey of more than 1,000 real estate agents in the U.S., real estate firm HomeLight found first-time homebuyers are now budgeting an average of $410,000 for their first home – a price many entry-level buyers simply can’t afford.

“There are several reasons for the shortage of starter homes,” Alex Shekhtman, CEO and founder of LBC Mortgage, told ConsumerAffairs. “One is that the construction of new homes has lagged behind population growth. Another is that many existing homes are being snapped up by investors, who then rent them out rather than selling them at an affordable price.”

At the turn of the 20th century, the Greater Heights area of Houston developed as an area dotted with small bungalows. Over the decades, it turned into an area of rental homes that were not very well kept but were affordable. In the last decade, Greater Heights has turned into a real estate investor’s dream.

“When you removed the chain-link fence, pulled back the carpet, and painted the walls back to white, these are charming homes which today we sell for $600,000 to $800,000,” Bill Baldwin, a local broker and city planning commissioner, told the New York Times.

The real estate industry classifies any home under 1,850 as a starter home. Using that definition, the National Association of Realtors (NAR) reported there were only 300,000 starter homes listed for sale in September 2021. Thanks to last year’s booming real estate market, the median list price for a starter home reached $260,000, about 11% higher than in September 2020.

Not much profit in building starter homes

If there is such a big market for starter homes, why don’t contractors build more of them? Daniel Blatman, associate broker at The Agency, a national brokerage firm, says building small homes presents a challenge for contractors. For example, the cost of the land to build a $250,000 home is the same as for a house that might sell for $750,000.

“They (builders) need to sell at higher prices to make the margins work for the amount of effort put into place,” Blatman told us. “It's more economical to purchase a lower-priced home and fix it up than to build ground-up new construction.”

That appears to be the crux of the issue. With the cost of materials, labor, and land, builders go where the money is – larger homes that sell for more.  Daniel Smith, CEO and founder at Keepingly, a home management platform, tells us a typical starter home should list for around $200,000.

“Yet, land costs, construction materials, state and (local) government fees have all risen over the last few decades,” Smith said. “Additionally, rules and regulations around the starter home requirements have shifted. Combined, all these factors have impacted the cost of construction for today’s entry-level home compared to those on the market in previous years.”

Can governments help?

All of the industry experts we consulted agreed that local, state, and federal governments could take action to encourage more entry-level home construction. Shekhtman says the government can offer incentives to builders and expand programs to financially help first-time buyers.

“Zoning laws could be reformed to allow for more density, which would make it easier and more profitable for builders to construct smaller homes,” he said.

Blatman said governments could reward buying and owning "unimproved land", as well as creating opportunity zone style benefits for certain parcels. They could also provide a benefit to investors who renovate and flip homes.

The government could also offer more creative benefits for housing creation that fit these criteria, which Blatman said would also benefit the developers' other higher-end products. 

“This can be similar to what is done in New York City by building high-end condos on the upper floors of a building and more economical options on the lower floors in order to get a tax abatement, among other benefits," Blatman said.

Relief in the form of these types of innovations and reforms could boost affordable housing the experts say. And with mortgage rates making homes even less affordable, relief can’t come too soon.

The HomeLight survey shows that, while some Midwestern housing markets feature entry-level homes for around $236,000, buyers in West Coast markets are facing list prices of nearly $900,000 for their first home.

A new report finds residential rent is falling – but not all rent is falling.

If you just rented a single-family home, chances are that rent is higher than it was just a few months ago. But if you are renting an apartment, you might have caught a break.

A new report from property data firm CoStar Group found apartment asking rents fell 0.1% in August from the month before. It might not sound like much but it was the first monthly decline in rent since December 2020.

While the slight decline may be heartening for consumers currently priced out of the home purchase market, it doesn’t come close to offsetting the rapid increase in average rents over the last year.

A report from Realtor.com shows people who rent spent 26.4% of their monthly budget in August putting a roof over their heads. Among the 50 largest U.S. metros, coastal areas topped August's list of least affordable rental markets, with rents accounting for the highest shares of household incomes in Miami at 46.5%, Los Angeles at 40.7%, and San Diego, with a 37.1% bite out of the household budget.

"Our analysis underscores the very real rental affordability challenges that many Americans face today,” said Realtor.com Chief Economist Danielle Hale. “Rents are significantly higher than in previous years and are taking up a substantial portion of incomes, which are growing at a slower pace than inflation." 

Single-family home rents rising, but more slowly

Renting a single-family home remains more expensive than moving into an apartment. CoreLogic, a property data firm, reports single-family rent growth was up by 12.6% in July year over year, even though the gains continued to slow from the historic high recorded in April. 

Miami’s 30.6% annual price gain was again the largest in July but is down from the 40.8% year-over-year growth recorded in March 2022. Single-family rents also cooled in red hot Phoenix, but the metro posted a 12.2% annual gain in July, the last month for which data are available.

Even so, Hale says there are some bright spots for renters. Based on the general rule of thumb that you should keep housing costs to under 30% of your paycheck, renters were able to follow best practice in the majority of large metros in August. 

“Plus, as rent growth continued to cool, national rents didn't hit a new record-high for the first time in nine months,” she said. “If these trends and typical seasonal cooling persist, renters may be better able to keep housing costs to a relatively manageable portion of their budgets in the months ahead."

Mortgage rates are still going up, making a home purchase at current prices extremely difficult for a growing segment of the home-buying market.

The average rate on the popular 30-year fixed-rate mortgage hit 6.7% on Friday,  according to Mortgage News Daily. The rate was 3.3% at the start of 2022.

When mortgage rates were around 3%, buying a high-priced home was more affordable. The lower interest rate produced a lower monthly payment.

But when the rate more than doubles in 12 months, the monthly payment on the same house is hundreds of dollars more. Right now, housing experts say the mortgage interest rate is a bigger factor in affordability than the price of the home – which has already started to fall.

The influence of the Federal Reserve

Though not directly tied to the Federal Reserve’s tightening of the federal funds district rate, the Fed’s recent moves have contributed to higher mortgage rates by softening demand for 10-year Treasury notes, which directly affect mortgage rates. As demand for these bonds falls, the interest rate rises.

“The buyer of a median-priced home, at today’s rate and using a fixed 30-year mortgage, is weighing a monthly payment that is about $900 per month higher than a year ago, which adds more than $10,000 to their yearly financing burden,” says George Ratiu, senior economist and manager of Economic Research at Realtor.com. “For buyers watching their take-home pay shrink due to higher prices, and shopping budgets diminish due to rising rates, today’s housing market remains highly unaffordable.”

The disappearing starter home

It’s even worse for people trying to purchase their first home, what was once called a “starter home.” According to the New York Times, builders are no longer constructing these modest, two-bedroom homes with 1,400 square feet or less of living space.

“The disappearance of such affordable homes is central to the American housing crisis,” the Times writes. “The nation has a deepening shortage of housing. But, more specifically, there isn’t enough of this housing: small, no-frills homes that would give a family new to the country or a young couple with student debt a foothold to build equity.”

Builders say it is almost impossible today to build a small house that would sell for $200,000 or less and still make a profit. Not only are land and labor costs much higher now, builders say government restrictions also add to costs.

For all the talk of an impending housing market correction, or even crash, real estate economists point out that every market is different. So far, some housing markets are vulnerable to losing value and ATTOM, a real estate data firm, has found them concentrated in three states.

The company’s Special Housing Risk Report spotlights county-level housing markets around the country that are more or less vulnerable to declines, based on home affordability, unemployment and other metrics that were analyzed in the second quarter of 2022. 

According to the analysis, New Jersey, Illinois, and inland California still had the highest concentrations of the most-at-risk markets in the second quarter, with the biggest clusters in the New York City and Chicago areas. Homeowners in southern and midwestern states were less exposed to falling home values.

The report’s researchers identified patterns, based on gaps in home affordability, “underwater” mortgages, foreclosures, and unemployment. They found that New Jersey, Illinois, and California had 33 of the 50 U.S. counties most vulnerable to potential declines in home values. 

The 50 most at-risk housing markets included nine in and around New York City, six in the Chicago metropolitan area, and 13 spread through northern, central and southern California. The rest of the top 50 counties were scattered across the U.S., including three in the Philadelphia, metro area. 

Values in the South and Midwest are holding up

The South and Midwest had the highest concentration of housing markets where values either have not gone down or are not expected to decline much, if at all in the future. They are considered the “least vulnerable” housing markets.

"The Federal Reserve has promised to be as aggressive as it needs to be in order to get inflation under control, even if its actions lead to a recession," said Rick Sharga, executive vice president of market intelligence at ATTOM. "Given how little progress has been made reducing inflation so far, the Fed's actions seem more and more likely to drive the economy into a recession, and some housing markets are going to be more vulnerable than others if that happens."

The risk of decline in property value was considered from a number of angles. The risk was highest in counties with a large percentage of homes facing possible foreclosure, as well as the percentage of homes at risk of being “underwater,” where the balance on the mortgage is greater than the value of the home.

Researchers also considered the percentage of average local wages required to pay for major homeownership expenses on median-priced single-family homes and local unemployment rates. 

A recent study by the ConsumerAffairs Research Team found a majority of consumers – 78% – said they believe the housing market will crash soon. In August, there was little evidence that it was moving in that direction.

While there is anecdotal evidence that home sellers are reducing their asking prices, the latest Consumer Price Index (CPI) shows the cost of putting a roof over your head continues to rise. The Shelter Index, which includes both rents and home prices, rose 0.7% in August, the fastest rate since January.

Economists point out that much of the increase was driven by rents, which are rising because so many would-be buyers have postponed their home-buying plans. It’s true that one industry report showed home prices eased slightly in July, but most of those decreases occurred in markets where prices had risen the most.

David Keiran, the chief financial officer at Senné, a real estate advisory and investment firm headquartered in Boston, says buyers are heading to the sidelines in growing numbers because they simply can’t afford the current monthly mortgage payments.

“Inflation, high mortgage rates, and record-high home prices are quickly reducing housing affordability, especially for renters looking to enter the homeownership market,” Keiran told ConsumerAffairs. “A typical monthly mortgage payment is 75% higher today than it was in June 2019. And earnings aren’t keeping up with the inflation.”

It's not like 2008

But will a slowdown in purchases lead to a housing market crash? Many housing industry analysts point out that we are far from the situation that existed in 2008 when the housing market did take a dive. Then, a wave of foreclosures triggered by defaults on subprime mortgages created a huge surplus in housing inventory.

At the same time, mortgage lenders abruptly pulled back after significant losses, greatly increasing the underwriting standards for home mortgages. With more available homes and fewer people qualified to buy, home prices plunged.

Things are a bit different now. Inventory levels, which had been at historic lows, have begun to rise a bit, providing buyers with more choices and creating more competition. But some experts think that might not last. Homeowners who have considered selling may be having second thoughts because, after all, they then have to buy something else and pay today’s high mortgage rates.

"With home prices expected to moderate over the forecast horizon and economic uncertainty heightened, both homebuyers and home-sellers may be incentivized to remain on the sidelines – homebuyers anticipating home price declines and potential home-sellers not keen to give up their lower, fixed mortgage rate – contributing to a further cooling in home sales through the end of the year," said Doug Duncan, Fannie Mae's senior vice president and chief economist.

The role of investors

There is another factor that could keep home prices from crashing, a situation that did not exist during the 2008 housing market crash. Today, the real estate industry includes an army of investors – from private equity firms to small businesses. 

Kurt Carlton, co-founder and president of New Western, a national private source of fix-and-flip residential investment properties, says these investors are always on the prowl for an attractive housing deal.

“As prices drop in a down market, we now have a new diversity of buyers to ensure there is a bid in the market beyond traditional homeowners,” he told us.

If true, that’s good news for current homeowners, who stand to hang onto more of their equity. But it also means many who are currently priced out of the housing market may find it very difficult to afford a home purchase, at least until mortgage rates fall.

There were more signs this week that the housing market is weakening, which may be good news for home buyers. Pending home sales, which track contracts signed for home purchases, fell by 1% in July.

The National Association of Realtors (NAR) reports that home sale contracts were down nearly 20% compared to July 2021.

"In terms of the current housing cycle, we may be at or close to the bottom in contract signings," said NAR Chief Economist Lawrence Yun. "This month's very modest decline reflects the recent retreat in mortgage rates. Inventories are growing for homes in the upper price ranges, but limited supply at lower price points is hindering transaction activity."

While the news for home buyers is good, it's not so good for renters. Realtor.com issued a report showing that the cost of renting a home in the suburbs continues to get more expensive. Until the pandemic, renting in the suburbs had always been cheaper than renting in an urban center.

The report shows that the rental price advantage of living in the suburbs vs. urban areas has shrunk by 52.9% compared to three years ago. The U.S. median rental price hit its latest all-time high in July of $1,879.

‘Between a rock and a hard place’

"Whether in a downtown area or suburb, staying put or making a change, renters are stuck between a rock and a hard place when it comes to affordability,” said Realtor.com Chief Economist Danielle Hale. "Compared to three years ago when rental price premiums were typically concentrated in urban hubs, renting is now nearly as expensive in the suburbs, where the rise in remote work has driven a surge in demand." 

At the same time, Hale says urban rents could face higher costs in the coming months. As more companies require employees to return to the office, the convenience of living nearby will become a factor, putting upward pressure on rent in the city.

"Put simply, renters are feeling it everywhere, but there may be some relief ahead,” Hale said. “Survey findings suggest that landlords are adjusting their approaches to renters' tightening budgets, while July data shows rent growth is leveling off at a relatively cooler pace than in 2021."

However, the report notes that national rents reached a new high for the 17th consecutive month in July, even as rent growth continued to slow. So far in 2022, the report shows annual rent gains have been consistently getting smaller month to month, indicating a shift toward a more sustainable balance of rental supply and demand.

Home buyers have faced even stiffer challenges in 2022 from rising mortgage rates and record-high home prices. But that may eventually become an advantage as many buyers get discouraged and forget about a home purchase for a while.

Buyers disappeared in many markets in July and as a result, Zillow reports the housing market showed the first signs of rebalancing, after years of heavily favoring sellers. In its latest market report, Zillow said home values fell in 30 of the nation’s 50 largest housing markets.

"Home values flattening so quickly after recent record growth might surprise, but it's a badly needed rebalancing that gives home buyers more options, more time to shop, and more negotiating power," said Zillow’s chief economist Skylar Olsen.

But before buyers begin celebrating, it’s useful to look at the specific markets where prices fell and where they stayed the same or even rose slightly. The largest price declines occurred mostly in the nation’s most expensive housing markets.

Expensive markets are still expensive

For example, San Jose, in the heart of Silicon Valley, led the way with a 4.5% decline. But San Jose is the nation’s most expensive housing market where the typical home price is still well over $1 million.

Home values actually rose in markets like Miami, Richmond, and Memphis, although the increases were under 2%.

The report suggests that hopes by some frustrated homebuyers that the housing market will see a significant correction or even a crash, might be misplaced. Olsen predicts something of a soft landing for the housing market.

Most equity gains are probably safe

"This slowdown is about discouraged buyers pulling back after the affordability shock from higher rates,” she said. “As prices soften, many will renew their interest, and we will continue our progress back to 'normal.' With buyers ready in the wings once confidence returns, homeowners can expect to keep the majority of the equity gains they've seen in the last two years."

However, the emerging housing market does hold some advantages for buyers. Instead of having to compete with several other buyers and often being outbid, buyers have a little more time. The Zillow report suggests homes will be on the market longer than they were in 2021.

Inventory is up 5.1% on a monthly basis, even though the addition of new home listings plunged 13.6% from June to July. Compared to July 2019, the last “normal” year before the start of the pandemic, new listings were off in July by 15.5%. 

Freddie Mac’s Primary Mortgage Market Survey (PMMS) contains some good news for people who would like to purchase a home in the months ahead. After peaking at over 6% earlier this year, the average 30-year fixed-rate mortgage (FRM) fell to 5.13% this week.

“Inflation appears to be beyond its peak, which has stopped the rapid increase in mortgage rates that the housing market was experiencing earlier this year,” said Sam Khater, Freddie Mac’s chief economist. “The market continues to absorb the cumulative impact of the large price and rate increases that led to a plunge in affordability. As a result, over the rest of the year purchase demand likely will continue to drag, supply will modestly increase, and home price growth will decelerate.”

According to the PMMS, the 30-year fixed-rate mortgage averaged 5.13%, down from last week when it averaged 5.22%. The average 15-year fixed-rate mortgage declined slightly to 4.55%.

The average 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.39%, down from 4.43% last week.

The slight decline in mortgage rates, coupled with last month’s sharp drop in the median home price, makes buying a home slightly more affordable. Still, when compared to a year ago, monthly payments are still quite high.

Last year at this time, the average 30-year fixed-rate mortgage carried an interest rate of just 2.86%. The principal and interest charge on a $300,000 mortgage was $1,242 per month. The same loan this week at 5.13% is $1,634 a month, nearly $400 more.

Opportunities ahead?

It’s clear that rising mortgage rates and record-high home prices slammed the brakes on the housing market. In the months ahead, real estate professionals say it may provide opportunities for people who have recently been priced out of the housing market. But Erik Wright, CEO at New Horizon Home Buyers in Chatanooga, Tenn., says not all markets are the same.

"The higher interest rates have decreased demand to a certain extent, but in markets where there is still a significant shortage of available housing compared to the demand, prices are still continuing to increase due to competition," Wright told ConsumerAffairs. "In other markets, where supply and demand are closer together, prices have stabilized and even decreased slightly."

For people considering a home purchase, Wright says the most important consideration is the affordability of the monthly payment based on the current interest rates. If Freddie Mac is correct and the current trend continues, those rates could be lower in the weeks ahead.

Despite a big drop in home sales that has partly been caused by a dramatic rise in mortgage rates, “second home” sales appear to be holding their own. According to Barron’s, second-home sales jumped 90% at the start of 2021 when compared to mid-2020.

Data compiled by HomeLight, a company matching homebuyers with real estate agents, shows that there has been a shift in who is buying second homes. According to the company’s summer 2022 survey, 64% of agents report that it’s people who don’t currently own a home who are buying what are typically thought of as “second homes.”

In other words, first-time buyers are buying their second home first. 

According to the agents in the survey, record-high home prices and rising mortgage rates are driving this trend. Some agents estimate that purchasing your “second” home as your first property in today’s market can help to save an estimated $76,000 on the cost of the property. In the Pacific region, the savings are even greater –  an estimated $177,000.

Clarissa Marshall, an agent with EXP Realty in Asheville, N.C., has noticed the trend in her market.

“A majority of the homes I’ve sold recently have been second homes, and are being purchased not by locals, but by people from all over the country,” Marshall told ConsumerAffairs. “Since the pandemic, these first-time homebuyers are able to work remotely, and are realizing they have the capability to live somewhere with more land, and for way less.”

Buying for the future

But Marshall says not all of those first-time buyers are moving in. She said she recently sold a home to a woman in her thirties who currently works and lives in Chicago. 

“She purchased a home in Asheville knowing one day she would relocate here, but for now, is continuing to rent and live in her apartment,” Marshall said.

Rose Ciardiello, an agent with William Raveis Realtors in the quaint coastal town of Guilford, Conn., has witnessed the same thing, with many first-time buyers from New York City, nearly a three-hour drive away, buying their “second home” first.

“It started off with renters not wanting to be cooped up in their apartments while there were various COVID restrictions, but now in the latter half of 2022, employees don’t need to be in their office five days a week, or really at all,” Ciardiello told us. “While these residents still have their apartments in the city, they actually are spending more time in their ‘second’ homes in Guilford.”

Branson a popular second home market

Brad Gore, a veteran agent in Branson, Missouri, has sold many vacation homes over the years. But lately, he has seen out-of-state buyers with a different purpose than in the past.

“What these people are doing is purchasing a home here in Branson, but continuing to rent their primary residences,” Gore said. “While they are not using these ‘second’ homes, they will rent them out to make additional income.”

Gore says some of the first-time buyers are trying to purchase properties in a growing, hot market before it explodes. They continue to rent their principal residence but want to be invested in real estate in a more affordable area.

HomeLight expects the trend to continue, especially as rising mortgage rates erode home affordability in markets like San Francisco, Las Vegas, Austin, and Phoenix.

After going down during the early days of the pandemic, rents are rising again. Almost 60% of renters report that their rent has gone up during the last 12 months. One in three say the increase was by 10% or more.

A new survey, released by Freddie Mac, also found that only 38% of renters saw their wages increase during that time. A third of survey participants said their increase in pay won’t cover their increased rent. 

In more bad news for both tenants and landlords, nearly 20% of people who experienced a rent increase say they are now “extremely likely” to miss a payment.

“The surge in rents that took place over the last 12 months has created even greater housing uncertainty for the most vulnerable renters,” said Kevin Palmer, head of Freddie Mac Multifamily. “Our survey shows that the national housing affordability crisis is worsening and that inflation is a key driver.”

The cost of housing has steadily risen since the beginning of 2022. In its July Consumer Price Index (CPI), the Labor Department reported that the cost of shelter rose 0.6% from June to July and is up 5.7% year-over-year.

The growth in rents is slowing

Other sources suggest that rents are growing even faster, especially for single-family homes. CoreLogic puts the year-over-year single-family home rent at 13.2%, rising nearly as fast as purchase prices. But its report contains some good news for renters.

“While the annual growth in single-family rents is nearly double that of a year ago and is still near a record level, price growth began decelerating in June,” said Molly Boesel, principal economist at CoreLogic. “Nationwide, both year-over-year and month-over-month growth were slower in June than they were earlier this year, and roughly half of the largest U.S. metro areas experienced a slowdown in annual growth in June.”

The Freddie Mac survey tried to gauge the impact of rising prices on consumers' housing choices, and it included a set of questions that were specific to renters. The nationwide online survey was conducted this year from June 6 to June 10 among a representative sample of 2,000 American consumers aged 18 and older. 

Not surprisingly, nearly every household in the survey was impacted by inflation during the last 12 months, which made rent increases even more painful. Sixty-six percent of consumers in the survey singled out higher costs for groceries and household supplies as adding to their financial burdens. Among the other most cited cost increases were those for transportation, eating out, and utilities.

Renters make up most of the pool of potential homebuyers, and the survey suggests that this pool of people is quickly drying up. Nearly three-quarters of survey participants report that they have put off homebuying plans. About half said home prices have increased to the point that a suitable home is no longer affordable.

What is true in one housing market isn’t necessarily true in another, especially when it comes to home values. Moody’s Analytics, in partnership with Fortune magazine, has analyzed the U.S. housing market and has projected which metro areas will lose value as the air goes out of the housing bubble and which metros might even gain value.

As mortgage rates spiked in the first half of 2022, home sales slowed since fewer people could afford the payments at record-high prices. The Moody's analysts have looked at housing markets coast-to-coast and have projected where falling sales are likely to affect prices the most.

After crunching the data, the researchers predict that home values will be flat between the fourth quarter of this year and the fourth quarter of 2023. That’s a huge slowdown from the nearly 20% annual increase that homes posted in the previous 12-month period.

Prices may rise and fall 

The analysis suggests that potential home buyers who are waiting for a significant drop in home prices may be disappointed. The largest declines will likely take place in the nation’s most expensive housing markets, which are mostly on both coasts.

The Villages, Fla., could see a 6.96% decline in home values, and Punta Gorda, Fla., could see home prices fall 6%. The Moody's analysis calls for a 5.57% reduction in Reno, Nev., a 5.5% drop in Honolulu, and a 5.52% decline in Spokane, Wash. 

For the moment at least, prices in the expensive markets of Austin and Las Vegas are holding steady, with the analysts saying prices could break either way in the months ahead.

On the flip side, 183 housing markets could actually see an increase in the average home price in the year ahead. Moody's suggests that prices could rise 4.12% in Albany, Ga., and New Bern, N.C. Prices are expected to rise by 3.84% in Augusta, Ga., 3.73% in Hartford, Conn., and 3.29%  in Casper, Wyo.

Hoping for a housing crash?

The prediction that home prices might not drop that much, and might even go up in some places, may be disappointing to people hoping for a more attractive entry point to the housing market. 

A recent ConsumerAffairs study found that 78% of consumers believe there will be a housing market “crash” and that many members of Gen Z are actively hoping for one.

The Moody's analysis suggests that there will likely be a market correction – and a mild one at that – rather than a crash. A housing crash is a sudden and steep decline in home values, often leading to economic ruin for many homeowners. A housing correction, on the other hand, is a slow and steady return of elevated home values back down to balanced levels.

The cost of renting an apartment in New York City hit a record high in June, as the median asking price hit $3,500, according to data collected by New York real estate site StreetEasy. It was even higher in Manhatten, hitting a median of $4,100 a month.

But the nation’s largest city is not the only place where the cost of renting a home is now rising faster than home prices. In many major population centers, where jobs pay well and are relatively plentiful, rents are rising through the roof.

Real estate broker Redfin reports that rents in the Cincinnati housing market jumped 39% in June. The median asking price was $1,815, giving the Ohio city the distinction of experiencing the largest percentage increase among the nation’s 50 largest metros. Seattle, Nashville, and Austin were close behind with rent increases of at least 30%.

Supply and demand

Housing economists point to supply and demand as the cause behind these increases – the same factor that has driven home prices to record highs and priced millions out of the home purchase market. Inventory levels of homes for sale remain extremely low, but demand rose dramatically during the first two years of the COVID-19 pandemic.

People who can’t afford to buy a home must continue to rent, creating another supply and demand imbalance. Lily Liu, CEO of Piñata, a landlord services app, says home prices have slowed their rise. However, she points out that high mortgage interest rates have made a home purchase unaffordable for many people.

“People were looking in the last few months whether prices would drop significantly,” Liu told NextAdviser. “Prices are actually pretty stable on the housing side, which means it still continues to be a difficult market to buy.” 

Rents in some cities are rising faster than the national average

Daryl Fairweather, chief economist at Redfin, says rents are rising faster in some markets than others. She sees a slowdown in rent growth because, just like with homebuyers, there is a limit to what renters can pay.

“Rent growth is likely slowing because landlords are seeing demand start to ease as renters get pinched by inflation,” Fairweather said. “With the cost of gas, food and other products soaring, renters have less money to spend on housing.” 

While the rise in rents may slow in the months ahead, Fairweather doesn’t see that happening everywhere. She notes that rents are still climbing at unprecedented rates in strong job markets like New York and Seattle and in areas like San Antonio and Austin that soared in popularity during the pandemic.

After years of declining inventory, there are a growing number of homes for sale. The inventory of available homes rose by 30.7% on an annual basis last month, the largest increase on record.

As sellers face more competition, prices are likely to fall. But the Realtor.com Monthly Housing Trends Report shows that hasn’t happened yet. Average listing prices remain near their all-time high.

"The U.S. housing market continues to move toward more evenly balanced supply and demand compared to the 2021 frenzy,” said Danielle Hale, chief economist for Realtor.com. “Our July data shows elevated mortgage rates left many buyers tightening their budgets and sellers responding with price reductions, while home shoppers who kept searching saw more available options." 

Even though home inventories increased in July, new listings declined. Hale says the shift in the housing market may be causing current homeowners to put off selling for a while.

“But data indicates that homeowners grappling with this decision are still in a good position in many markets, with buyer interest keeping well-priced homes selling quickly,” she said. “Plus, many sellers have a substantial equity cushion to leverage, thanks to the past decade of rising prices. Whether or not they take advantage of these opportunities will be key to inventory trends moving forward."

Lack of buyers

The report concludes that a lack of buyers is the main reason inventory levels are increasing. Rapidly rising mortgage rates have made homes at current prices unaffordable for millions of would-be buyers.

With more buyers on the sidelines, many sellers have begun to cut their asking prices after two or three weeks with no offers. The previously red-hot markets of Las Vegas, Denver, Austin, Nashville, Tampa, and Sacramento saw the most price reductions, according to the Wall Street Journal.

Realtor.com reports that typical monthly mortgage payments are now 1.5 times higher than in July 2021, with many buyers putting their purchase plans on hold. That is giving active listings room to grow. 

However, Hale says buyers aren’t the only people affected by the shift in market conditions. Sellers, seeing prices dip and facing the same high mortgage rates when they buy another house, are staying put for now. New listings declined in July for the first time since March.

If mortgage rates remain elevated, home prices will have to moderate to draw buyers back into the market. July’s median listing price was $449,000 - just $1,000 less than June’s record high. On a square foot basis, year-over-year asking price growth moderated slightly in July from the June pace.

In the Federal Reserve’s campaign to bring down inflation, record-high home prices are in the Fed’s crosshairs. Policymakers see the housing market as a major driver of the overall inflation rate.

A new study of home prices underscores just how much work the Fed has to do in that regard. Real estate site Home Bay reports that the price of U.S. homes has far outpaced the overall rate of inflation over the last four decades and has accelerated in the last two years.

Researchers focused on housing’s cost per square foot. Their study found that the median price per square foot of a home in the U.S. has increased 310% since 1980. Since 2020, when home prices exploded during the first year of the COVID-19 pandemic, prices have exceeded overall inflation by 139%.

The median square footage of a new single-family home is 2,356 and is priced at $397,100, making the median price per square foot $169. In 1980, the median price per square foot was only $41.

Highest and lowest cost per square foot

According to the study, here are the U.S. cities where the cost per square foot is the highest:

1. San Jose ($801)

2. San Francisco ($656)

3. Los Angeles ($520)

4. San Diego ($494)

5. New York ($458)

Here are the cities with the lowest cost per square foot:

1. Memphis ($92)

2. Cleveland ($103)

3. Pittsburgh ($134)

4. Indianapolis (134)

5. Buffalo ($139)

Hoping for a correction or crash

These prices, coupled with rising mortgage rates, have reduced the number of consumers who are actively shopping for a home. A new study by the ConsumerAffairs Research Team suggests that many consumers are waiting out the decrease in affordability and are banking on home prices and mortgage rates to fall in the months ahead.

In fact, our research found that 78% of Americans think we’ll soon face a housing market crash. The youngest consumers – members of Gen Z – are most likely to want one so prices will fall.

Nearly half of respondents in the survey of 1,000 consumers said they believe the housing market will tank next year. About 75% of participants said they plan to buy a home if the market crashes.

Most industry experts say a market crash like the one that occurred during the 2008 financial crisis is unlikely because of the imbalance between buyers and available homes. However, they concede that home prices will drop as affordability declines.

A correction is normally a decline of between 10% and 20%. In the ConsumerAffairs survey, 80% of respondents said they would like to see a correction that would make a home purchase more affordable.

Home sales have dropped sharply from last year’s peak all across the U.S., and sellers are cutting prices as rising interest rates make homes less affordable. At the same time, a new report shows that rents are surging.

Rentometer, a residential asset data firm, has analyzed rent costs for a three-bedroom single-family home in 252 U.S. cities. In the second quarter, the company found that 96% of these areas had recorded year-over-year average rent increases.

Perhaps more notable, 80% of the municipalities saw the average rent increase by 10% or more. Miami had the biggest increase in average rent, rising 59%. Rents are up 31%  in Tempe, Ariz., 21% in San Diego, and 30% in Austin.

Even some markets where rents are relatively low saw big increases in the second quarter. The average rent is up 24% in Memphis and 13% in Indianapolis.

States with widespread increases

Arizona, Florida, Georgia, and Texas have experienced some of the most widespread rent increases. In Arizona, Tempe, Scottsdale, Tucson, Peoria, and Pheonix have recorded double-digit year-over-year rent increases.

Besides Miami, Florida rents have skyrocketed in Fort Lauderdale, Boca Raton, Tampa, and Jacksonville. In the Orlando metro, the Orange County Commission voted unanimously this week to require landlords to give tenants 60 days' notice before increasing rents.

“The 60-day notice is critical," said Orange County Mayor Jerry Demings. "Having this ordinance in place gives tenants time to prepare and seek alternative housing in the event that they do not wish to stay where they are currently living."

Renters just about everywhere are feeling financial pressure. In Louisville, Ky., a new report shows that the median rent is outpacing the median income in the city.

Tenants are being priced out in New York City

A report from StreetEasy found that more than one-third of new rental leases in New York City are the result of the previous tenants being priced out of the market after getting deep discounts during the early days of the pandemic. The report found that the citywide median rent hit a record high of $3,349 in May. That represents a 34% increase from the near record lows seen last year during the height of the pandemic.

Housing economists say rents are rising because fewer people are buying homes. In its most recent report, the National Association of Realtors (NAR) said sales of existing homes in June were 5.4% lower than in May and were down 14.2% from June 2021.

Ian Shepherdson, a chief economist at Pantheon Macroeconomics, told the New York Post that home listings have increased by 40% over the last four months, setting up what he thinks will be a major housing market correction. He believes home prices may eventually fall by as much as 20%.

People in three-quarters of the 50 largest housing markets are better off continuing to rent than becoming a first-time home buyer, according to a new analysis from Realtor.com. Researchers say the shift took place in the first half of 2022 when mortgage rates nearly doubled.

It’s not that rents are cheap. But mortgage rates that are over 6% have simply made buying a home unaffordable for a large sector of the population. 

"With rents and for-sale home prices both hitting record-highs in June, the rising cost of financing a home purchase stands out as the clear driver of rental affordability relative to typical starter homeownership costs,” said Realtor.com Chief Economist Danielle Hale.

While mortgage rates hovered around 3%, the cost of a monthly house payment was very competitive with rent, which increased last year at about the same rate as home prices.

"While more markets offered relative rental affordability in June than in January, rents are still rising across the country,” Hale said. “Plus, many of the areas that favored renting are among the biggest tech cities, where real estate tends to come at a premium.”

Median rent price hit a record high in June

The median price of a rental in the U.S. hit a new high for the 16th consecutive month in June, but it still was less expensive than the monthly ownership costs of a home. Although sale prices of homes also hit multiple record-highs in the first half of the year, Realtor.com's June analysis found that mortgage rate hikes were the biggest driver of the widening affordability gap between renting and first-time buying.

In June, it cost $1,876 a month to rent a typical home or apartment. That’s a 12-month increase of 14.1%.

People buying their first home were faced with ownership costs that were nearly 30% higher than rents in June. The typical monthly ownership cost was about $2,437. Realtor.com estimates that higher mortgage rates added about $416 to the average monthly house payment in June.

Erik Wright, CEO of New Horizon Homebuyers in Eastern Tennessee says people who are deciding whether to buy or rent should carefully crunch the numbers.

“I think the most important consideration is what can you afford for a monthly payment based on the current interest rates,” Wright said. “The price you can pay for a house has probably changed significantly from back when interest rates were around 3%.”

Large markets favor renting over buying

The Realtor.com analysis suggests that renting is the best choice in larger markets. The country's biggest tech cities accounted for eight of June's top 10 metros that favored renting over buying. That list was led by Austin, where the monthly starter homeownership cost was 97.8% higher than the median rental price. In all of the top 10 markets, renting was at least 52% more affordable than first-time buying.

Only 11 metro areas favored first-time buying over renting in June. It was more economical to rent a home in Cincinnati than to buy one in January, but the economics flipped during the first half of the year. In June, Cincinnati’s monthly starter home costs were $14 less than rental prices.

Pittsburgh is the most economical rental market in the top 50, with ownership costs averaging 33% less than rental costs. It’s followed by Birmingham and St. Louis.

In what could be good news for people who want to purchase a home, the number of buyers canceling deals in June hit its highest level since the start of the COVID-19 pandemic.

A report from real estate broker Redfin shows that nearly 15% of all sales contracts last month were canceled, the highest rate since April 2020, when the pandemic temporarily brought the housing market to a standstill. 

The reason for the increase is no mystery – it’s due to the combination of higher mortgage rates and rising home prices. The monthly payment on the same house might be several hundred dollars more a month than it was at this time last year.

The average rate on a 30-year fixed mortgage started at around 3% in 2022 and has been rising steadily ever since. It briefly hit 6% in mid-June, and the average mortgage rate is still around 5.75%, according to Mortgage News Daily.

Advantage, buyers

This turn of events gives a slight edge to buyers who have had to compete in this market with multiple offers on a declining number of available homes. With a significant number of buyers backing out of deals, the remaining buyers should face less competition – at least as long as mortgage rates remain at current levels.

Chase Gardner, a researcher at Insurify, says fewer people shopping for homes should take some of the pressure off of home prices.

“Additionally, housing markets typically see their greatest yearly supply between July and September — a time period we’re just now entering,” Gardner told ConsumerAffairs. “Fewer buyers on the market plus increased housing stock is likely to slow the recent spike in home value growth and demand in coming months.”

Recession worries

Jody Kahn, senior vice president at JBREC, told CNBC that she is seeing a sharp increase in cancelations that are occurring not long after the contract is signed, especially where new construction is concerned.

“Builders state buyers are nervous about a potential recession, struggling to get comfortable with higher payments, or expecting home prices to decline,” she said.

Buyers now may have the most leverage they have enjoyed since the housing market took off two summers ago. Taylor Marr, Redfin’s deputy chief economist, says that gives them more room to negotiate. 

A year ago, it was common for buyers to offer over the asking price without seeing the property and to waive inspections. Marr says that is no longer happening except in the most competitive segments of the housing market.

The Federal Housing Administration (FHA) is adding new flexibility that mortgage lenders can pass along to qualifying borrowers who experienced a gap in employment or loss of income because of the COVID-19 pandemic.

In the agency’s just-released Mortgagee Letter 2022-09, it stated that salaried, self-employed, and hourly wage-earners who were affected by COVID-19 but now have steady income will now have a much better chance at buying a home through affordable FHA-insured mortgage financing.

“The changes we are announcing today further our efforts to facilitate recovery from COVID-19 and support access to homeownership, particularly for populations most deeply impacted by the pandemic,” said FHA Commissioner Julia Gordon. 

“The pandemic affected the livelihoods of tens of millions of workers in this country, particularly workers of color and those at the lower end of the wage scale. Limiting these families’ homeownership opportunities because of the unavoidable impacts of an unprecedented global health crisis, when they are otherwise well-qualified for a mortgage, is unnecessary and contrary to this Administration’s goals and FHA’s mission.”

Applicants need to provide documentation

Mind you, this is not an all-inclusive, no-questions-asked change. There are more than 20 pages of the different categories, documentation, and calculations that the FHA will require from a borrower.

Fortunately, the agency has compiled all the program’s caveats so that applicants can quickly find the things they need -- like profit and loss statements, balance sheets, business and credit reports, and tax returns. The biggest hurdles that ConsumerAffairs identified will affect people who frequently changed jobs and employees who are on temporary leave.

Among other things, those who frequently changed jobs will need to verify and document their income to show that they are in a stable financial condition. They'll also need to either obtain transcripts of training and education demonstrating qualification for a new position or employment documentation evidencing continual increases in income and/or benefits. 

Those on temporary leave will be required to provide a written statement confirming their intent to return to work, their intended date of return to work, documentation from their current employer confirming their eligibility to return to work after temporary leave, and documentation of sufficient liquid assets.

Doing your FHA homework

Anyone who wants to take out an FHA-backed mortgage would be wise to do a little homework. ConsumerAffairs has a package of guides and FAQs that should help anyone no matter what FHA question they have. They include:

• What is an FHA loan?

• The 9 requirements for an FHA loan in 2022

• Conventional mortgage loans vs. FHA loans

The FHA and the U.S. Department of Housing and Urban Development (HUD) also provide informational material that can help with questions or concerns about applying for pandemic-related mortgage applications. Those resources include:

• COVID-19 resources for homeowners 

• Counselors who can answer questions

The HUD frequently updates changes and answers questions via social media as well. Here’s a list of all the agency’s social media sites.

With mortgage rates hovering around 3% throughout the pandemic, the cost of a mortgage was less than the comparable rent in many markets. That was one reason for the sustained increase in home sales.

But now the script is flipped. A recent report from Zillow shows that the monthly mortgage payment is more than the cost of renting in 45 of the nation’s top 50 housing markets. 

Two things have changed. Interest rates have surged, nearly doubling from recent lows. Meanwhile, the price of homes continues to rise. In its latest report for May, the National Association of Realtors (NAR) found that the median home price was a record-high $407,000.

When you put that together with higher mortgage rates, you get a monthly payment for a typical home that is well over $2,000 a month. Zillow Economist Nicole Bachaud says the recent surge in mortgage rates to nearly 6% could bring big changes to the housing market.

“We are already seeing signs of waning demand, and expect these recent rate hikes to quicken the market's needed rebalancing,” Bachaud said. “While shoppers will likely experience less competition for homes than the frenzied recent months, their purchasing power has dwindled." 

Rents haven’t risen as fast

Even though more people are being pushed into the rental market, the numbers don’t show a sharp increase in the cost of renting. In fact, a recent report from rental site Zumper shows just the opposite.

Zumper’s National Index suggests that rent price increases are slowing. According to the report, the median one-bedroom rent is up 0.5% from May to June. It's another all-time high, but it's also a much more reasonable growth rate than the one to two percentage point increases that became the norm during the height of the pandemic.

The median cost of a two-bedroom rental is down a significant 2.9% from May to June, a signal that some consumers who’d put off buying a home are finally making the jump as housing prices begin to level off. 

New York City rent is still the highest

Median rent is the highest in New York City, where a typical apartment costs $3.600. Oakland, Calif., has the 10th-highest rent at $2,100 a month.

"Although rents have accelerated since the start of 2021, the rapidly rising cost of a mortgage still makes rent the cheaper option nearly everywhere,” Zillow concludes.

A typical rent payment in May is more expensive than a mortgage payment with a 20% down payment, including taxes and insurance, in just five of the 50 largest U.S. metros. In May 2019, renting was more expensive in 28 of those metros. 

Zillow analysts say home values finally turned the corner in May to show a slightly slower pace of annual growth after annual price appreciation set new record highs for 13 straight months. The current growth rate is 20.7%, which is down from 20.9% in April. 

Mortgage rates cooled off a bit this week, dropping to an average of 5.7% for a 30-year fixed-rate mortgage. For prospective buyers waiting for these higher rates to bring down home prices, the wait may be long indeed.

“The rapid rise in mortgage rates has finally paused, largely due to the countervailing forces of high inflation and the increasing possibility of an economic recession,” said Sam Khater, Freddie Mac’s chief economist. “This pause in rate activity should help the housing market rebalance from the breakneck growth of a seller’s market to a more normal pace of home price appreciation.”

But so far, that hasn’t happened. In its latest report on home sales, the National Association of Realtors (NAR) put the median home sale price in May at a record $407,000. With a mortgage rate near 6%, the monthly payment has priced millions of people out of the housing market.

Still plenty of buyers

But because there are so few homes available for purchase, along with plenty of people who can afford those higher home payments, sales have not plunged. Kate Wood, housing expert at NerdWallet, says the housing market is probably not in a “bubble.”

"While inflation pushing up the cost of raw materials is more bad news for new construction, we've actually seen prices for existing homes — which had been experiencing sharp year-over-year increases — begin to cool down,” Wood told ConsumerAffairs. “Yes, it's from a raging boil to a strong simmer, but with interest rates eating into home buyers' budgets, any shift toward normalization in the housing market is good news for buyers.”

Yet the higher monthly costs to purchase a home have not dampened demand. NAR reported this week that pending home sales – contracts signed but not yet closed – actually increased in June, rising 0.7%. 

A market in transition

Compared with May 2021, however, pending sales were down 13%. NAR Chief Economist Lawrence Yun says that suggests the housing market is in transition.

"Contract signings are down sizably from a year ago because of much higher mortgage rates," Yun said.

Because home prices and mortgage rates are rising together, Yun said it is more difficult to make a 20% down payment. With 10% down on the median-priced home, Yun says the average house payment has increased by $800 a month since the beginning of the year.

Wood says that the higher monthly payments have yet to deter buyers, and home prices don’t appear ready to fall anytime soon. Of course, she says that could be good news for people who already own homes.

With home prices at record highs and mortgage rates well over 5%, fewer Americans are buying homes – a fact reflected in the most recent mortgage data.

Last week, the Mortgage Bankers Association reported that applications for mortgages fell by 6.5% in just one week. That was followed by a report from property data firm ATTOM showing that residential mortgage origination in the first quarter of this year fell 18% from the fourth quarter of last year.

That’s the largest quarterly decrease since 2017 and down 32% from the first quarter of 2021. While much of the decline was in refinancing existing mortgages, mainly because rates are now the highest in about a decade, it’s clear that there are fewer buyers in the current market.

Deborah Hauser, executive director of the Boston real estate firm Senné, says the combination of rising mortgage rates and rising home prices are hitting first-time buyers the hardest.

“First-time homebuyers represent the largest share – 31% – of people purchasing homes, according to data from the National Association of Realtors (NAR),” Hauser told ConsumerAffairs. “And most first-time buyers are younger than 40, which means the buyer pool is deep, a good indication that demand will remain strong, especially since housing inventory is at historical lows.”

It’s getting harder to buy a home

The new housing market environment requires buyers to have higher incomes and larger down payments in order to purchase a similarly priced home from last December, when interest rates were around 3%. That will price many first-time buyers out of the market because Hauser says lenders are not likely to budge from their strict underwriting standards.

“Processes to prevent mortgage defaults have been in place for a number of years, so we are less likely to see that affect housing and since we are woefully behind in new construction, the demand will continue to outpace supply in the foreseeable future so housing is predicted to remain solid for a number more years,” she said.

If not for the lack of available homes for sale, prices might soften considerably in this environment. Because there are still enough buyers who can afford the higher prices for the limited number of available homes, market experts like Hauser expect that sellers will remain in the driver’s seat for the foreseeable future.

Zillow, an online real estate marketplace, has surveyed housing economists and concluded that the current frothy housing market is not in a bubble.

The latest Zillow Home Price Expectations Survey polled more than 100 experts from academia, government, and the private sector to seek a consensus opinion on the state of housing and the outlook during this uncertain economic time. Of those surveyed, 60% said they do not believe the U.S. housing market is currently in a bubble, compared to 32% who think we are in a bubble and 8% who are not sure. 

A bubble exists in an environment where home prices have exceeded fundamental values and consumers’ ability to continue purchases. Buyers suddenly disappear from the scene and values come back to earth.

Still plenty of qualified buyers

Even though the Mortgage Bankers Association reports that mortgage applications plunged 6.5% last week, real estate sales veteran Josh Altman, co-founder & advisor at BidMyListing.com, says rapidly rising home prices aren’t keeping buyers out of the market.

“June and July are some of the most popular months to purchase a home,” Altman told ConsumerAffairs. “The summer season is one where there is a competitive inventory; houses do not stay on the market long. The average number of days a house was listed on the market was only 31 days in the month of May.”

While the lack of housing inventory is contributing to higher prices and is making homes less affordable, Altman says the competition for available homes will keep prices on the higher side, at least for now. That may put pressure on first-time buyers, who tend to be young, but Altman says there are plenty of buyers who can afford the limited number of homes that are on the market. 

“One of the primary reasons people want to buy a house is appreciation and ownership,” Altman said. “As a result, home prices will continue to increase until there is a significant change in interest rates and inventory along with other factors like supply chain limitations and the low market inventory.”

Last housing bubble

The last time there was a housing bubble was the early 2000s, when lax underwriting standards and cheap money led to a boom in homebuilding with ever-increasing prices. It all came crashing down in a wave of foreclosures in 2009.

"Although a recession is looking more and more likely, the housing market today is a far different beast than what we saw in the mid-2000s," said Zillow economist Nicole Bachaud. "Unlike in 2006, this market is underpinned by strong fundamentals and has been built on mortgages with sound credit, factors that won't change in the near term."  

Altman advises would-be buyers to research the location where they want to buy a home. A comparison of the local real estate market to the national market can show if the local market is in line with the national real estate trends. A disconnect could offer negotiation opportunities, he says.

May was the least affordable month to purchase a home in 16 years, according to a new analysis from property data firm Black Knight. 

The report found that U.S. home prices have risen 42% since the start of the pandemic in 2020, with the average home having gained almost 9% in value just since the start of 2022. Price increases slowed slightly in April but are still rising by double-digits.

More telling is the fact that the monthly principal and interest (P&I) payment on the average-priced home with 20% down is nearly $600 more than it was at the start of the year and $865 more than before the pandemic.

With 30-year mortgage rates at 5.25%, the share of median income required to make that P&I payment climbed to 33.7% as of May 19. That's just below the 34.1% high that was reached in July 2006.

Bad time for first-time buyers

Yatin Karnik, the founder of Confer, Inc. and a former senior vice president at Wells Fargo, says borrowers are now facing heavy challenges in financing a home purchase.

“It especially impacts first-time home borrowers, which is one-third of the purchase market,” Karnick told ConsumerAffairs. “With rising interest rates being imperative to tame inflation during this upcoming buying season, affordability will be further stretched for borrowers.”

As a result, Karnick expects that the affordability factor will likely weigh heavily on the housing market in the months ahead. As a result, he anticipates a slight reduction in home prices as investor demand slows.

But that doesn’t automatically mean people who want to buy a home to live in will have an easy time. Thanks to rising mortgage rates, many would-be buyers will find that homes are still out of their price range.

“In reality, potential home buyers are being priced out of the market,” Karnick said.

Growing wealth gap

Deborah Hauser, executive director of Residential Brokerage at Boston real estate firm Senné, agrees, but only to a point. Even with higher interest rates, she expects that the summer real estate market will find plenty of buyers at current high prices.

“If sellers decide to cash in and more inventory comes to market, then we will see some price adjustments, but otherwise, the lack of inventory will keep prices high, at least until mortgages remain under 6%, which remains to be seen,” she told us.

Housing economists say worsening affordability is widening the wealth gap in America. While the rapid escalation in prices is a burden for people who are trying to buy a home, it remains a bonanza for current homeowners because it's increasing their net worth.

The Black Kight report found that current homeowners gained $1.2 trillion in collective tappable equity – the amount available to borrow against while retaining at least a 20% equity stake in the home – in just the first quarter of 2022.

In total, mortgage holders gained $2.8 trillion in tappable equity over the past 12 months, a 34% increase that equates to more than $207,000 in equity available per borrower.

Home prices have posted record gains in recent years, in part because of a lack of homes on the market. But after hitting new record lows earlier this year, a report from Realtor.com suggests that this trend is reversing.

Housing inventory, which is a measure of available homes for sale, recorded the first year-over-year increase in May since June 2019. Danielle Hale, Realtor.com’s chief economist, says there are probably a couple of reasons for that.

"Among key factors fueling the inventory comeback are new sellers, who are listing homes at a rate not seen since 2019, as well as moderating demand, with pending listings declining year-over-year in May," Hale said.

But buyers continue to face headwinds. Despite the increase in available homes and a recent jump in mortgage rates that has made a home purchase less affordable for many, sellers continue to push the envelope when it comes to listing prices.

The Realtor.com report shows that the median listing price hit an all-time high of $447,000 in May. That’s a 17.6% increase when compared to May 2021.

Tapping equity to counter inflation

While these conditions present a challenge for people who hope to purchase a home, it continues to be good news for current homeowners regardless of whether they plan to sell or not. Steve Resch, vice president of Retirement Strategies at Finance of America Reverse, says more homeowners are tapping the equity in their homes as inflation continues to increase the cost of living.

"Americans are adjusting budgets due to rising costs for food, energy, and just about everything else,” Resch told ConsumerAffairs. “One overlooked asset that could help combat rising costs is real estate, which in many parts of the country, has skyrocketed at rates that far exceed consumer inflation rates. For seniors, who currently control over $10 trillion in home equity, this could be the key to balancing their budgets and safeguarding their retirement plans.”

Resch says homeowners have several options when it comes to accessing home equity. They could refinance their existing mortgage, though with rising mortgage rates that’s less attractive right now. They can also take out a home equity line of credit.

“For retirees who intend to stay in their homes for the long term, however, an alternative to traditional financing could also be a reverse mortgage,” Resch said.

With a reverse mortgage, the borrower doesn’t make payments as long as they live in the home. For tax purposes, Resch says the loan proceeds aren’t considered income.

“This can go a long way towards balancing a budget and supplementing income," he said.

Sales of existing homes continue to fall as rising mortgage rates present buyers with affordability issues.

The National Association of Realtors (NAR) reports that home sales fell 2.4% from March to April. Compared to April 2021, sales were off by 5.9%. 

In previous months, sales declines were often the result of fewer available homes for sale. But in April, sales fell against a backdrop of rising interest rates that increased the average monthly mortgage payment.

"Higher home prices and sharply higher mortgage rates have reduced buyer activity," said Lawrence Yun, the NAR's chief economist. "It looks like more declines are imminent in the upcoming months, and we'll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years."

Prices are still high

Fewer sales did not translate into lower prices. The NAR reports that the median existing home price for all housing types in April was $391,200, an increase of 14.8% from April 2021. Those numbers mark 122 consecutive months of year-over-year price increases.

Some economists believe a drop in demand for homes will eventually provide a break for buyers. But with a very tight housing inventory, Michael Gifford, CEO & co-founder of Splitero, isn’t sure when that might happen.

“The reality is that there is significant pent-up demand in all markets, with supply slowly trickling out,” Gifford recently told ConsumerAffairs. “The question is about seller motivation when it comes to dropping their price. Selling motivation is low in this market for most sellers as their next home is challenging to locate whether they are trying to buy or rent.”

Mortgage rates are a headwind for buyers

Even if prices were to moderate in the months ahead, mortgage rates will likely remain a headwind for buyers. The average 30-year, fixed-rate mortgage dropped slightly this week to 5.25%, according to Freddie Mac. A year ago, buyers were locking in a 3% mortgage rate.

With declining sales, the number of homes on the market rose nearly 11% last month, giving buyers more choices and reducing the likelihood of bidding wars. But home shoppers still have to move quickly. 

NAR data shows that properties remained on the market for an average of 17 days in April before going under contract. Eighty-eight percent of homes sold in April 2022, were on the market for less than a month.

When Americans rented a truck from Penske to move, cities in the Sunbelt were their most popular destination over the last 12 months. The company says the pandemic years of 2020 and 2021 were busy.

In fact, the company’s annual moving report found that early 2022 is even busier. Penske describes truck rentals for do-it-yourself moves as “robust.”

When compared to 2020, 20% more Americans moved in 2021. New remote work opportunities enabled an estimated 14 million to 23 million Americans to relocate, according to the U.S. Census Bureau.

Houston was the top moving destination in 2021, and other Texas cities were not far behind. Austin, Dallas, and San Antonio were other popular new cities that truck renters called home. And despite the appeal of mild winters in the Sunbelt, even Chicago got in on the moving action.

The top 10 moving destinations

Here’s Penske’s list of the top moving destinations in 2021:

1. Houston, Tex.

2. Las Vegas, Nev. 

3. Phoenix, Ariz. 

4. Charlotte, N.C.

5. Denver, Colo. 

6. San Antonio, Tex.

7. Dallas, Tex. 

8. Orlando, Fla. 

9. Austin, Tex. 

10. Chicago, Ill.

Popularity equals rising housing costs

Not surprisingly, cities near the top of the list have seen the biggest increase in home prices. The Houston Association of Realtors recently reported that people who bought a home in Houston needed to increase their incomes by nearly 27% in order to qualify for a median-priced house.

That same report showed that the current median-priced home in Houston is $330,800, and only 47% of households make enough money to afford a single-family home. That’s down by almost 10% from the same time in 2021.

If people who are priced out of the housing market must rent instead, Xiaodi Li, an economist at Moody's Analytics, says that will make rent costs more expensive.

“However, we should also consider the macro environment and whether a recession will hit the U.S. economy," Li told ConsumerAffairs. “We expect rents, especially those in high-cost areas, might be negatively affected alongside home sale prices.”

Home prices in Phoenix, number three on Penske’s list, are growing faster than any city in America. According to the S&P CoreLogic Case-Shiller Home Prices Indicies, the median home price in the Arizona city has risen 33% over the last 12 months and is up 57% over the last two years.

When the housing market collapsed in 2008 and home prices plunged, it wasn’t long before investors swooped in and bought distressed properties to convert them to rental properties.

The trend has only increased over the last decade and has coincided with a dramatic drop in homes for sale. Real estate experts have attributed record-high home prices, in part, to the declining number of homes on the market.

Lately, some homeowner associations (HOA) in large subdivisions have adopted bylaws to limit the number of homes that can be occupied by anyone other than the owner. 

The Wall Street Journal reports that the Whitehall Village Master Homeowners Association is attempting to amend its covenants to require anyone buying a home in the development to live in the home or leave it unoccupied for six months before it can be rented. 

Among the arguments made by the HOA for this action is to protect property values. The HOA has claimed that rental properties are not maintained at the level of owner-occupied homes and can make a neighborhood less desirable.

Small impact at first

Greg Kurzner, a strategic real estate investing adviser at Real Estate Bees in Atlanta, is heavily involved in residential “buy and hold” investing and purchasing homes for resale. He says companies like Invitation Homes, American Homes 4 Rent, and others began institutionalizing the business of residential rental properties around 2012 and were not initially impacting the housing market in a significant way. 

“Over time, that has changed, with firms buying more and more homes for rent and more firms entering the residential rental industry,” Kurzner told ConsumerAffairs. 

Unlike the immediate post-housing crash years, Kurzner said today’s real estate investors are happy to pay the list price for homes because rental rates are increasing. He says they often hold an advantage over owner-occupant buyers because they can pay cash and settle quickly. In short, they’ve been very good for sellers.

“The presence of buy-to-rent competitors has further exacerbated a low inventory market and there is little chance the trend will slow down until rental rates and or the costs associated with rental ownership increase to a point where investing in rentals isn't profitable,” he said. 

Highly profitable

Investing in rentals appears to be very profitable at the moment. The Journal cites data from CoreLogic that shows one out of five homes that sold in December was purchased by an investor. The National Association of Realtors reports that the median price for a home selling in February was 15% higher than 12 months earlier.

Kurzner says HOAs can and do implement rental restrictions, and they take many forms. Some restrict short-term rentals such as Airbnbs, and others prohibit rentals entirely.

“HOAs can typically implement restrictions as long as they do so as they would when adding or amending their covenants and restrictions for anything else,” Kurzner said. “Most amendments or changes to covenants require a supermajority vote of the owners.” 

To make the changes enforceable, Kurzner said HOAs should seek legal counsel to prepare documents that are legal, enforceable, and don't violate any local, state, or federal laws. An attorney can help ensure that the restrictions are not discriminatory.

Consumers hoping to purchase a home are feeling strong headwinds just as the spring home-buying season gets underway. Prices are at record highs while mortgage rates continue to climb, increasing the average monthly payment.

According to data compiled by Bankrate, the interest rate on the average 30-year fixed-rate mortgage is 5.14%, up from 4.85% a week ago. The increase is at least indirectly tied to inflation.

Mortgage rates are closely correlated to the yield on the 10-year Treasury bond, which has moved higher in recent weeks because of inflation. A year ago, the average mortgage rate was just over 3%.

Big difference

Two percentage points make a huge difference when it comes to a monthly payment. Principal and interest on a $400,000 mortgage at 3.14% is $1,717. The same mortgage at 5.14% produces a monthly payment of $2,182 – an extra $465 a month. Over the life of the loan, that adds up.

“The difference in 3% and 5% mortgage rates translates to $125,000 more on a $500k home,” Polina Ryshakov, lead economist at real estate broker Sundae, recently told ConsumerAffairs.

“We’re about to head into the spring selling season with record-low inventory so we likely won’t see a slow in sales any time soon.”

‘Extremely difficult process’

It’s that record low inventory of homes that is keeping home prices at record levels. A report issued this week by the National Association of Realtors (NAR) found that rising prices and declining affordability now hold back many buyers, especially minorities.

The biggest challenges identified are a lack of affordable homes, a lack of homes that fit their criteria, competing with multiple offers, and saving for a down payment.

"Record-high home prices and record-low inventory have made the home buying process exceedingly difficult,” said Dr. Jessica Lautz, NAR vice president of demographics and behavioral insights. “Our new study shows that while the inventory crisis is affecting potential buyers of every race, nearly all home buyers agree that homeownership is still an important part of the American Dream.”

While buyers are finding fewer choices, they are also encountering higher asking prices. The NAR reports that the median price of an existing home selling in February was $357,000, 15% higher than in February 2021. Those conditions have raised the average monthly payment by 28%.

The number of homes to choose from, meanwhile, got smaller. Inventory levels were down 15.5% from a year earlier.

Mortgage rates are marching toward 5%, and home prices are at a record high. Should you consider a 40-year mortgage?

While a 30-year mortgage seems like a long time, a 40-year loan seems like an eternity. But financing the loan over an extra 10 years will bring down the monthly payment, which is getting so high that it is squeezing hundreds of thousands of people out of the housing market.

The principal and interest on a 30-year fixed-rate mortgage of $300,000 at 4.8% is $1,574. That same loan financed for 40 years at that same fixed rate lowers the payment to $1,407.

Benefits and drawbacks of longer loans

Before you sign on the dotted line, consider the downside. Kristina Morales, a Realtor in Cleveland, Ohio, said lower monthly payments come at a cost.

“The obvious downside is how much more a borrower pays in interest compared to a 30-year fixed mortgage loan,” Morales told ConsumerAffairs. “The longer the loan, the more the borrower pays in interest. I have seen mortgage simulations where a borrower using a 40-year mortgage would pay in interest alone almost what they paid for the home – in essence, almost doubling the cost of the home.”

Of course, that assumes the homeowner pays the mortgage for the full 40 years. The average for owning one particular home is about eight years. But even in a short-term situation, homeowners will pay more in interest on the first payment than they would on the same loan financed for 30 years.

“If you get a $300,000 30-year mortgage at a 5% interest rate, you'll pay about $24,500 in principal in the first five years, and pay almost $280,000 in interest in 30 years,” Holden Lewis, home and market insights expert at NerdWallet told us. “With the same amount and interest rate on a 40-year loan, you'll pay about $13,400 in principal in the first five years, and more than $394,000 in interest over 40 years.”

A 40-year loan makes sense for some people

That said, a 40-year fixed-rate mortgage might be preferable to an adjustable-rate mortgage (ARM), especially at a time of volatile interest rates. For all its faults, both Morales and Lewis said they would recommend the longer fix-rate loan over an ARM.

“As I talk with my lender partners about ARMs, they are saying that there is not a huge discount in the rate like we would historically see,” Morales said.

For someone struggling to qualify for a mortgage, Morales said it might make the most sense to take out a 40-year loan. As the borrower begins to earn more money, they could apply some of that extra cash to pay down the principal each month, which would lower interest costs.

The trend of higher home prices and higher mortgage interest rates continued to March, requiring larger down payments and higher monthly mortgage payments. 

The Monthly Housing Trends Report from Realtor.com shows that the median home price hit $405,000 for the first time ever in March. But that surge in home prices might be enough to cool down a housing market that has been red-hot since the start of the COVID-19 pandemic.

"Despite the $405,000 price tag, March data reveals we are starting to take some steps towards a more balanced market," said Danielle Hale, chief economist for Realtor.com. "Buyer demand is moderating in the face of high costs, and we're beginning to see more homeowners take price cuts on their listings and overall inventory declines lessen in response.”

Rising interest rates

At the same time, potential buyers are facing headwinds from rising interest rates. Freddie Mac reports that March ended with the average 30-year fixed-rate mortgage rate at 4.67%, the highest in four years.

“Mortgage rates continued moving upward in the face of rapidly rising inflation as well as the prospect of strong demand for goods and ongoing supply disruptions,” said Sam Khater, Freddie Mac’s chief economist. “Purchase demand has weakened modestly but has continued to outpace expectations. This is largely due to unmet demand from first-time homebuyers as well as a select few who had been waiting for rates to hit a cyclical low.”

Tara and Shannon Gannon of Team Gannon Real Estate, a Long Island, N.Y., firm, are seeing the effects of rising prices and rising interest rates. They tell us it could create a more stable market in the months ahead and reduce the number of bidding wars that have frustrated many would-be buyers.

“Buyers are aware of the rising rates and might not be so inclined to offer tens of thousands of dollars over asking prices,” the team told ConsumerAffairs. “We have also noticed an increase in price reductions.”

Because of these conditions, the Gannon Team predicts a lighter spring real estate market, as some homeowners with low interest rates may be reluctant to sell and purchase another home at a higher rate.

Home constructions pick up speed

The Realtor.com report also found a substantial increase in new home construction, something that could help alleviate an acute housing shortage that has persisted for years.

“Assuming all these factors and new construction hold steady, we could begin to see inventory increases this summer – welcome news for buyers who have endured pandemic home shopping and can continue their journey despite higher buying costs,” Hale said. 

Hale says the current conditions may spark a flurry of buying before rates rise even more. But on the flip side, she says buyers who are able to put off a home purchase for a few months may find more homes to choose from in mid to late summer.

Inflation is increasing the cost of living for just about everyone, but renters may be feeling the most pain. New data analyzed by Realtor.com suggests that American renters spent 30% of their monthly budgets on rent in February.

But that’s just the average. February rents accounted for an even higher portion of household incomes in 14 of the 50 largest U.S. markets, with the list of least affordable areas dominated by Sun Belt metros like Miami, Tampa, and San Diego.

According to the report, the median rent hit a new high of $1,792 last month, up more than 17% over February 2021. Rents were higher across all apartment sizes, but studio apartments experienced the fastest growth, rising to a median of $1,474.

However, larger units also posted double-digit gains. Rents for both one-bedroom and two-bedroom units rose more than 16%, with the median rent on a two-bedroom unit going over $2,000 a month for the first time.

“With rents surging nationwide, February data indicates that many renters' budgets may be stretched beyond the affordability limit," said Realtor.com Chief Economist Danielle Hale. 

High rents prevent homeownership

The sudden rise in rents not only creates an affordability issue for renters, but it also makes it much harder for them to save enough money to become homeowners. Hale says renters who hope to become buyers also face other challenges.

“Fast-rising mortgage rates and still-limited numbers of homes for sale could mean some would-be buyers may stick with the flexibility of renting,” Hale said. “With rental demand already outmatching supply, rental affordability will remain a challenge.”

Mortgage rates jumped last week and start this week very close to the 5% mark. The average 30-year fixed-rate mortgage hit 4.95%, moving more than a full percentage point in just the last six months. The difference in one percentage point on a $250,000 mortgage is $149 a month, an amount that could price many buyers out of the market.

Housing shortage

A new report by the Pew Research Center finds that several factors are contributing to rising rents. Among them are a shortage of new construction and a surge in home buying during the early months of the pandemic, which was encouraged by record-low mortgage rates.

The report shows that 46% of American renters spent 30% or more of their income on housing in 2020, including 23% who spent at least 50% of their income. That means nearly half of U.S. rents meet the U.S. Department of Housing and Urban Development’s definition of being “cost-burdened.” 

"Whether it's rent or mortgage payments, the general rule of thumb is to keep monthly housing costs to less than 30% of your income,” Hale said. 

For renters who want to buy a home and need to save for a downpayment, Hale says it’s important to find a relatively affordable rental unit -- something that’s getting harder to do.

Zillow, the online real estate marketplace, has some good news and bad news for first-time home buyers.

The good news is that the housing market will eventually return to 2019, pre-pandemic conditions -- when homes were more plentiful and affordable. The bad news is that a return to normal probably won’t happen until 2024 at the earliest.

Until then, Zillow’s panel of experts predicts that there will be fewer homes on the market and that they will cost more. Tabitha Mazzara, director of operations at mortgage lender MBANC, agrees with that assessment. She recently told ConsumerAffairs that low inventory will be the prime factor keeping home prices elevated.

“At most, we will see some flattening of home prices, but don't expect prices to plunge in 2022,” Mazzara said. “Where housing is concerned, we're not in a bubble that's going to pop any time soon.”

Fewer homes for sale

Zillow traces skyrocketing home prices to declining supplies of homes for sale, crediting that trend with a 32% increase in home prices over the last two years. Total inventory has fallen from a monthly average of 1.6 million units in 2018 and 2019 to just over 1 million units in 2021. Monthly figures in 2022 are even lower. 

At the same time, millions of Americans have sought to purchase homes. Many were renting apartments in 2020 when the pandemic began and suddenly saw the need for more space.

About 38% of the Zillow experts predict that inventory levels should return to a monthly average of 1.5 million units or higher in 2024. Some are more optimistic, believing things could be in a more normal state by sometime next year. However, almost no one in the group is expecting a turnaround this year.

"Inventory and mortgage rates will determine how far and how fast home prices will rise this year and beyond," said Zillow Senior Economist Jeff Tucker. "We are seeing new listings returning to the market, slowly, as we enter the hottest selling season of the year, but this supply deficit is going to take a long time to fill." 

Intense competition for homes

The reason for the “supply deficit” isn’t complicated. Since the housing market crash of 2008-09, builders have reduced the production of new homes by nearly 50%. At the same time, many baby boomers have decided to remain in their homes as they age and are not selling.

Because building costs have risen so much over the last decade, builders are producing fewer entry-level homes that first-time buyers can more easily afford. That’s caused first-time buyers to compete with one another for the limited number of entry-level homes on the market.

There is hope for first-time buyers, the Zillow experts say, but patience will be required. While most believe the market will return to normal in 2024, some expect it will take much longer. Eighteen percent of the experts polled did not believe the share of first-time buyers will rise above 45% until after 2030.

The last two years of the COVID-19 pandemic have completely transformed the U.S. housing market, according to a new report from real estate marketplace Zillow.

Zillow reports that the number of homes for sale continued to fall in February and is now 48% below 2020 levels. Home prices are still rising and are, on average, 32% higher than two years ago.

Meanwhile, rents have accelerated in the last year of the pandemic. Zillow estimates that a one-year lease would cost almost $3,400 more per year than one signed two years ago.

These trends are making it harder for renters to become homeowners, especially since interest rates are also starting to rise. Tabitha Mazzara, director of operations at mortgage lender MBANC, says the lack of available homes is the main driver of prices. She says prices may level off at some point but will not go down over the next six months.

“Although we're seeing a lot of volatility in some sectors of the economy -- gas prices, the stock market -- basic law of supply and demand will preclude any downward trend in home prices,” Mazzara told ConsumerAffairs. “There's a low supply of housing, and ongoing supply chain issues mean that isn't going to be resolved quickly by homebuilders. Further, inflation is raising the price of building materials.”

Real estate investors are doing just fine

While the short-term future may pose challenges for buyers, investors may have never had it so good. People who have invested in real estate since the start of the pandemic have seen the value of their properties appreciate faster than most other assets.

Jawad Nayyar, co-founder of DAO PropTech, a company assisting real estate investors, says investors are well-positioned to weather inflation.

“Asset markets usually have a growth rate higher than the inflation rate over longer periods, so it is a great hedge against inflation over longer periods even in adverse economic conditions,” Nayyar told us. 

‘Rising at unfathomable rates’

Zillow economist Nicole Bachaud agrees that a lack of inventory has been the major force shaping the real estate market over the last two years. She notes that there are roughly 730,000 houses currently for sale in the U.S., compared to 1.4 million in February 2020. 

"We've seen strong demand for homes and prices rising at previously unfathomable rates,” Bachaud said. “A wave of millennial and baby boomer buyers have depleted housing inventory that was never really replenished following the Great Recession."

Looking ahead, Zillow economists expect annual home value growth to continue to accelerate through the spring, peaking at 22% in May before gradually slowing to 17.8% by February 2023. Sales in 2022 are forecast to rise 4.8% above levels in 2021, which would be the best year for sales since 2006.

For buyers, that means moving quickly. When a home is listed for sale, it doesn’t last very long. Zillow estimates that homes now go under contract within 11 days of appearing on the market, six days faster than a year ago.

Home mortgage rates have started the week above 4%, making it even more expensive to purchase a home. To compensate, analysts say some buyers are using a risky tactic that helped blow up the housing market more than a decade ago.

Because higher home prices and higher interest rates combine for higher monthly mortgage payments, an increasing number of buyers are foregoing a 30-year fixed-rate mortgage and instead are selecting an adjustable-rate mortgage (ARM). Data firm CoreLogic has shown that the share of mortgages that have adjustable rates rose to 10% in January.

Buyers on the very edge of affordability sometimes select an ARM because the rate is significantly lower than a fixed-rate mortgage, at least at the beginning. While the rate on a 30-year fixed-rate mortgage has risen to over 4%, rates on ARMs can be a full point lower.

ARMs can be attractive because they offer an initial low rate for several years. The term might be as few as three years or as much as 10 years. After that, the rate adjusts about once a year to reflect prevailing rates. If they adjust higher, the monthly payment goes up.

‘Hoping and praying’

Last summer Joyce, of Trinity, Texas, took out an ARM with Finance of America Reverse. She tells us that she was very happy with the experience but has concerns about how high the rate could eventually go.

“I'm hoping and praying that they're not going to rapidly increase the rate and terms because it's an adjustable rate,” Joyce wrote in a ConsumerAffairs review. “It's already gone up once but I'm glad there is a cap. If there had not been the 7% cap, we would not have accepted the mortgage at all.”

And therein lies the concern some housing experts have with ARMs. Until very recently, mortgage rates have been low and stable. As long as that scenario prevails, ARMs carry less risk.

Changing environment

But in a rising interest rate environment, it is hard to predict how high rates might go. Joyce’s loan caps at 7%, but that is probably more than twice the rate she started with.

In the early 2000s, millions of borrowers took out subprime mortgages with low “teaser” rates that quickly escalated to double digits. Because many borrowers couldn’t really afford the low rates to begin with, the increase in monthly payments created a wave of foreclosures that tanked the housing market.

No one is suggesting history is about to repeat itself, but a new generation of homebuyers, too young to remember the 2008 housing crash, should be aware of the pitfalls. Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors, says buyers should be mindful of borrowing costs.

“While the next few weeks will be unpredictable as markets continue to churn, the outlook is for mortgage rates to rise even higher,” she said in a statement. 

Home shoppers who are considering an ARM might be wise to consult an objective financial adviser who has knowledge of the real estate industry. When shopping for a lender, checking out thousands of verified ConsumerAffairs reviews of mortgage companies will also be helpful.

Rising home prices and rising mortgage rates are not a good combination. Frustrated homebuyers headed to the sidelines last week, as the Mortgage Bankers Association (MBA) reported a big drop in loan applications.

According to the MBA, applications for home mortgages dropped 1.2% from the previous week. Much of the decline was for refinanced loans because the higher rates made refinancing less appealing. 

Many consumers who took out mortgages to purchase a home were buying expensive homes. The average purchase application loan size remained elevated at $453,200 - the second-highest amount in the MBA's survey.

Making home purchases even less affordable, most buyers are now paying over 4% for a mortgage. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 4.23% from 4.12% the week before.

‘High demand and growth’

Jawad Nayyar co-founder and chief vision officer of DAO PropTech, a firm assisting real estate investors, says the housing market should continue to move higher despite rising rates and prices.

“In some areas of high demand and growth, the value growth might be as high as 25%,” Nayyar told ConsumerAffairs. “We believe the current bullish trend would also translate into higher growth rates for the next year, increasing the values further by another 15%. Towards the end of the year, the market growth is expected to slow down, due to political uncertainty.”

Tabitha Mazzara, Director of Operations at mortgage lender mbanc, agrees that home prices will not only hold their current value in the months ahead but are likely to move even higher. She notes that inventory levels are way below normal.

“With ongoing supply chain issues, we won't be seeing any sudden increase in inventory in the near future, either,” Mazzara told us. “The minute any property becomes available, people are still buying, and there is still a lot of money in circulation from government programs designed to stimulate the economy during COVID.”

Not enough homes for sale

Mazzara says the current market is drawing homeowners and investors who are longing for some stability.

“The stock market is up and down, crypto is up and down, and the bond market is also affected by the situation in Ukraine,” she said. “But home prices will not have that same volatility."

Joel Kan, the MBA's associate vice president of Economic and Industry Forecasting, says mortgage rates may remain volatile for a while because of uncertainty surrounding Federal Reserve policy and the war in Ukraine.

Consumers who were stuck in a renting situation last year paid more than in years past.

A recent report from Zumper, a site that allows consumers to search for apartments, shows that the median rent on a one-bedroom apartment rose 12% year-over-year in 2021. That pushed prices to $1,374, on average. Prices rose even higher for two-bedroom apartments, at 14.1% growth year-over-year. Unfortunately, things don't seem to be off to a better start in 2022.

"Rent has opened 2022 in much the way it spent 2021 -- setting a new all-time high," Zumper's Jeff Andrews noted.

Here are the cities with the top five highest rent prices per month as of January 2022, according to Zumper's data:

1. New York, N.Y. -- $3,260
2. San Francisco, Calif. -- $2,850
3. Boston, Mass. -- $2,720
4. San Jose, Calif. -- $2,390
5. Miami, Fl. -- $2,340

Consumers returning to cities

Housing demand has been recovering in recent months following the rollout of COVID-19 vaccines. East coast cities like New York have seen an influx of residents who are making their way back after a mass exodus in 2020. That competition is making it easier for landlords to raise rent prices.

Andrews says the national housing shortage has also played a major role in pushing up rents. 

"The sudden increase in housing demand since the pandemic began in March 2020 exacerbated what was already a national housing shortage that dates back to the financial crisis in 2008, after which annual housing production dropped substantially," he said. 

"While some of the post-pandemic demand might fade as the pandemic becomes endemic, the housing shortage is a long-term issue that will likely continue to push rent up in 2022."

Mortgage rates are moving higher, making homes – already at record highs in terms of median price – less affordable.

The average rate on a 30-year fixed-rate mortgage with conforming loan balances increased this week to 3.64%, still relatively low from a historical perspective. But rates were below 3% several months ago when John, of Georgetown, Texas, decided to refinance his mortgage and contacted eight lenders.

“The mortgage rates and closing costs varied widely,” John wrote in a ConsumerAffairs review. “I ended up refinancing my mortgage with Jake at Network Capital. Jake was able to save me 22% off my original home mortgage.”

But fewer current homeowners like John are refinancing this week since the opportunity to get a lower rate has largely passed, at least for now. The Mortgage Bankers Association (MBA) reports that the number of refinancing applications plunged by 3% from the previous week. It was 49% lower than one year ago.

"Mortgage rates hit their highest levels since March 2020, leading to the slowest pace of refinance activity in over two years,” said Joel Kan, MBA's associate vice president of Economic and Industry Forecasting.

Some home buyers getting more serious

Kan says the average 30-year fixed-rate mortgage has increased 30 basis points in just two weeks, primarily due to a recent spike in the yield on the 10-year Treasury bond. Mortgage rates are keyed to the 10-year bond. 

Kan says the increase in mortgage rates may have slowed refinancing activity, but it has also caused some prospective home buyers to get more serious.

"Despite the increase in rates, purchase applications jumped almost 8 percent, with conventional purchase applications accounting for much of the stronger activity,” Kan said. “The average loan size for a purchase application set a record at $418,500.”

Realtors report that demand for homes remains strong despite rising mortgage rates. But according to Kan, buyers are facing challenges to finding homes in their price range, especially with the cost of financing going up.

Every rise in rates makes monthly payments more expensive. A 0.5% increase in interest rates on a 418,500 mortgage increases the monthly payment by $115.

If you’re a homeowner, you may have recently received some unsolicited offers from total strangers who say they’ll buy your house, sight-unseen, for cash.

The housing market is red-hot, with median home prices at record highs, so why would any homeowner respond to such an appeal? 

Josh Stech, CEO and founder of Sundae, a company that facilitates home sales to investors without using a broker, said these solicitations are targeting a certain type of homeowner – one who is desperate.

“The industry is partly fueled by a cottage industry of real estate gurus who make money offering to teach people how to find and prey on ‘desperate’ sellers,” Stech said in an interview with ConsumerAffairs. “While I won’t name names, I can confirm that wholesalers will use a number of well-honed predatory practices such as the bait and switch tactic.”

Middlemen for investors

Stech says many operators don’t really buy the home at all, but rather are “wholesalers” who act as a middleman for an investor. They persuade the homeowners to agree to a below-market price, citing needed repairs, and then find a way to reduce that price even more.

“They’ve also been known to use phony inspections and legal threats to lock in the seller at a price far below what the house is worth,” Stech said. “Once they have done all they can to secure the home at the lowest possible price, they then turn around and sell the house to an investor and pocket the spread as their ‘assignment fee’ without ever purchasing the home or putting up any money to make repairs.”

Stech says the wholesaler’s profit comes at the expense of the homeowner, who loses a significant amount of their equity.

“In some cases, an offer can be $70,000 below what the home is really worth,” he said. “That is a lot of money to a person who may have fallen on hard times and needs to sell their home.”

Homeowners have options

The problem many homeowners face is a lack of money to make the repairs and improvements needed to sell the property at its market value. If significant repairs are required, the property might not pass a mortgage inspection and must sell for cash. Cash buyers typically offer well below market value.

Stech says his company can provide an alternative by putting a homeowner in touch with a number of investors who purchase “as-is” properties. The difference, he says, is his company provides a platform where buyers must compete with one another.

“Sundae serves as an advocate to ensure the seller gets the best price,” Stech said.

There are other alternatives as well. A homeowner may apply for a home equity loan to make the repairs, then list the home for sale with a real estate broker. 

While they may be more likely to get closer to the market value, there are costs involved. There are usually closing costs for the home equity loan, and a typical brokerage fee is 6% of the sale price.

With home prices rapidly increasing over the last few years, the challenge facing first-time homebuyers is even steeper in 2022. But with more organizations allowing remote work, buyers have more options than they used to.

Instead of living within commuting distance of an urban area office, employees are able to live farther away and take advantage of more affordable home prices and an overall lower cost of living. The housing experts at Realtor.com have crunched the numbers and assembled a list of the best housing markets for first-time buyers.

To make the list, a city had to have a strong job market, light traffic, plenty of places to eat and drink, a younger population, affordability, and more homes to choose from. The 2022 top 10 markets, in ranked order, are: 

1. Magna, Utah 

2. Chalco, Neb.

3. Mauldin, S.C.

4. Beech Grove, Ind.

5. Portsmouth, Va.

6. Cottage Grove, Wis.

7. Grimes, Iowa

8. Kuna, Idaho

9. Ferndale, Mich.

10. Maitland, Fla.

"Buying a first home is always a challenging undertaking, and it's been an especially tough couple years for first-time buyers, many of whom are struggling to find a home that's within their budget or win in a competitive bidding situation," said Realtor.com Chief Economist Danielle Hale. "With this in mind and the fact that remote work has given people more flexibility in where they live, we wanted to identify markets where first-timers have a chance to become homeowners and find a great quality of life."

The markets on the list have about twice the number of available homes for sale than the national average. They also have the kinds of amenities that tend to draw young families.

A good mortgage rate is also important

But even when you can find an affordable home, Promise, of Hellertown, Pa., says getting the best possible mortgage rate is also an important factor. She reports a good experience dealing with Rocket Mortgage.

“Very efficient, and a small group of people I was in contact with, which I loved because they knew my case through and through,” Promise wrote in a ConsumerAffairs review. “They answer and explain all questions perfectly! Highly recommend to anyone looking to buy a home for the first time!”

Getting a good mortgage rate is even more important now because rates appear to be heading higher. According to Money magazine, the interest rate on a 30-year fixed-rate mortgage started the week at 3.846%, up 0.039 percentage points over the weekend. 

Because of supply chain bottlenecks, home builders are struggling to finish homes because they can’t get all the materials they need.

The shortage has been magnified because builders have significantly increased production in the last 12 months. As a result, the Wall Street Journal reports that there have been cases in which people have moved into unfinished homes that may lack gutters or garage doors.

Some builders have been forced to suspend sales in some of the nation’s most active housing markets as they wait for supplies of home building materials to catch up with demand.

These same issues, to a lesser extent, are affecting home remodeling companies. In a ConsumerAffairs review, Becky of Windsor, Colo., said she ordered new windows from Champion Windows and Home Exteriors last March.

“Some of our windows were finally installed mid-September 2021,” Becky wrote last month. “We have tried to get a response as to when we will get our other windows and front door, promises that the GM would contact us multiple times, never has happened.”

A spokesman for Champion Customer Care responded to Becky’s post, apologizing for the delay and telling her the company is working through its supply chain issues.

“We are working with our factory and your local Champion office to get an update on your order and will be in touch with you as soon as possible to complete your installation,” the company said.

Problems began with the pandemic

According to the Journal report, the building and remodeling industry’s persisting supply chain issues are largely rooted in the COVID-19 pandemic. Since the start of the pandemic, outbreaks of the virus have closed entire factories and limited transportation options. Building materials have to compete with other consumer products that have overwhelmed ports for nearly a year and a half.

Executives at one builder – Homes by WestBay LLC in Riverview, Fla. – say their company has begun to order the windows for new homes six months in advance, giving themselves three times the lead time that was normal before the pandemic.