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After nearly two years of unprecedented competition, the residential real estate market is finally showing signs of calming down. Although inventory remains low and demand remains high, home sales and home price growth has begun to slow this spring.
One of the main reasons for the decline in demand is the rise in mortgage interest rates. At the beginning of the COVID-19 pandemic, the U.S. Federal Reserve launched aggressive stimulus measures to stem the economic downturn, pushing interest rates to historic lows. This has made buying a home more affordable. But the Fed recently reversed course and started raising interest rates amid concerns about high inflation. The average 30-year fixed mortgage rate is now over 5%, up from a low of 2.65% in January 2021, and is likely to continue rising through the remainder of 2022.
Rising borrowing costs are discouraging purchases and cutting purchasing budgets, especially for people who don't have the income, credit history, or assets to qualify for the lowest interest rates. However, housing prices themselves are also an important factor leading to a decline in interest in real estate.
Prices have been on a steady upward trajectory for the past 10 years, but the sharp rise in prices since the beginning of 2020 has been especially noticeable. At the beginning of 2020, the median home sales price in the U.S. was $288,000, but by early 2021 that number had increased 14% to $329,000. By the beginning of 2022, the median home price had risen another 16% to $376,000, having already reached $424,000 in April of this year. This pace of price increases means that buyers, especially first-time homebuyers, are not benefiting from rising home prices, and their wage growth and ability to save for a down payment are likely not keeping pace with rising prices, leaving them out of the market. He's starting to leave. .
