The Housing Market Cooling Off in 2022

2 min read

housing market cooling off


After 2 years of housing prices skyrocketing to infinity, is the end of this rally anywhere near? The numbers seem to suggest so. There are clear indications that the housing market is starting to cool off in 2022, with a few caveats.

Cooling housing market

For the last 2 years, the housing market has absolutely exploded year over year. Many still anticipate that it will continue to do so in 2022. However, we’re starting to see a shift and slow-down in pricing across the board. According to Redfin, 12% of homes listed for sale in the US have reduced their price, compared to 9% in 2021.

Sure, this is a good thing, but overall, the market is still very hot! It’s hard to comprehend just how people keep affording to buy housing, but with such pent-up demand, is it really that hard to believe?

Increasing mortgage rates

Increasing mortgage rates are putting a big dent in people’s wallets and their ability to purchase a home. Prospective buyers are being hit with sticker shock when they apply for financing and see their potential monthly mortgage.

Sellers are now getting nudged to start lowering their prices a bit. The idea of selling a home within 24 hours is now becoming a bit of a distant memory. Sellers don’t want their houses staying on the market forever. They would rather lower their price slightly to close a bit quicker. Nobody really knows just how high these interest rates are going to get! Better lock in your profits now, just in case the housing market takes a bit of a plunge.

High mortgage payments

Redfin has reported that the median home price has now reached a record of $384,000. The monthly mortgage on the median home is also now at a blistering $2,245 per month with a 4.72% interest rate. That means the average American household is going to spend 34% of their income on their housing costs!

This high mortgage payment to income ratio is the highest it’s ever been since 2006. If that doesn’t raise red flags, I’m not sure what will. At this rate, more and more families are being priced out of the market, without a doubt. Sooner or later, the buying pool of those that can afford is going to dry up, forcing these exorbitant prices to come down a bit.

Housing market predictions

After asking professionals in the industry to weigh in, it’s an overwhelming consensus that the market may stay hot for the coming year, but it will cool off just a bit. The factors determining the market are

  • There will be a continuous shortage of inventory
  • Gen Z is right behind Millenials, causing additional pressure
  • Borrowers are strong and less likely to default
  • It’s going to take something big to see a housing crash

Although all the items above signal an unwavering hot market, it’s also fair to say that it won’t stay hot forever. Yes, there is so much pressure and demand for housing, but so many people are being priced out by

  • Increasing housing prices, which many cannot afford
  • High inflation, causes people to lose buying power
  • Increasing interest rates to very high levels
  • Wages not keeping up with home prices and inflation

Really, it’s a toss-up just when a price correction will occur, but chances are, it will happen.

Final thoughts

Now the question is, should I buy a home now, or wait until the market drops? That’s the million-dollar question. The answer to this is an underwhelming “it depends”.

If you are financially prepared to purchase a home, you can afford the mortgage comfortably, and planning on living there for at least 5-10 years, then I say go for it! Your primary residence should not be considered an investment, but a home. In that case, as long as the numbers look right, and you are ready, then go for it.

If you are in it to time the market, then I would say hold off. The market is so crazy right now it’s probably a good idea to sit on the sidelines and let everything level off. The timeline is really unknown to anybody at this point, but one should never jump into chaos when everyone is panicking.

What are your thoughts on everything going on? Let us know below 🙂

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