Home Prices Skyrocket To Record Highs Pricing Buyers Out Of The Market

This article is about Home Prices Skyrocket To Record Highs Pricing Buyers Out Of The Market.

If you are in the market to buy a home or already in your home, you probably know home values are sky-high right now. In this blog, we will detail the driving factors that helped increase home appreciation across the country and discuss the updated conforming loan limit for the county year 2022. Each year Gustan Cho Associates updates our buyers on the conforming loan limit changes. This year we saw one of the largest increases on record. We will dive into the increase in more detail. 

Reason Why Home Prices Skyrocket To Record Highs

Why Home Prices Skyrocket To Record Highs

Home prices skyrocket to record highs and there is no sign that demand for homes will ease up. Basic economic laws of supply and demand bleed right into the housing market. As of now, there are more buyers than sellers. As the supply of houses goes down we see the demand go up, which has created the price of homes to skyrocket. It is not uncommon to see bidding wars across the country. Most homes are selling within a couple of days with numerous competing offers. Each offer is higher than the last which is creating higher sales prices in virtually every area of the country.

Supply Chain Crisis

Supply chain issues – In a blog post on the White House official website, they directly acknowledge the supply chain issues affecting the housing market. It is ironic how long it took the administration to acknowledge supply chain issues in other markets across the country. The current supply chain is affecting the construction of new homes which is keeping the supply low. The cost of products to build a house such as lumber has skyrocketed. For example, lumber prices increased 114% from May 2020 to May 2021. This is the largest increase for lumber since this metric began collecting data. In June 2021, the price of iron and steel had also increased by 73% compared to 12 months prior. These major commodities are required to build any home.]

Home Prices Skyrocket To Record Highs Part Due To Labor Shortage

Labor shortage- Even if you are able to get your hands on the necessary materials to build a home, you then are running into issues with finding skilled labor to build your home. Well, this pandemic has created great resignation, many Americans are simply being paid to stay at home. For those who continue to work, there was a great opportunity to make a lot of money. Those who worked in the trades were able to find work. But there was not enough labor to keep up with the demand of the building. Many new construction homes are taking way longer than expected to finish. The builders are having trouble getting major appliances like dishwashers and oven ranges. Many lenders are not able to close a mortgage transaction until the home is 100% complete. This is leaving 90% of completed homes vacant, lowering the overall home supply. 

Home Prices Skyrocket To Record Highs: More Demand For homes Due To Historic Recond Low Mortgage Rates

Home Prices Skyrocket To Record Highs

Historically low-interest rates – Before the pandemic, interest rates were creeping up at a normal pace. It was not uncommon to see interest rates well into the 5 %s. When the pandemic hit, the Federal Reserve lowered the bond rate all the way to 0% which has bled down to the consumer. During the lows, you were able to get a 30 year fixed mortgage in the 2 %s. Interest rates are starting to creep up and many borrowers in the market to buy a home know this. This is increasing demand to buy sooner than later. When interest rates are low, you are able to afford more homes. Since Americans are able to afford a higher-priced home, this is also contributing to increased home values.

Healthy Robust Economy With An Abundance Of Jobs

Strong economy – When the economy is going strong and unemployment is low, housing prices tend to rise. During a strong economy, Americans feel more secure with their finances and the ability to take on debt, including housing debt. Data shows American’s as a whole currently has more savings and are more likely to get approved for a mortgage. As of now, Americans have more savings and higher credit scores compared to recent history. While the pandemic has split the haves and have nots even greater, even borrowers who are in trouble with their current mortgage loans typically have enough equity to get out of the property before entering a foreclosure. Even during the pandemic, the economy has stayed steady and the stock market has closed at record numbers numerous times. 

The Federal Housing Finance Agency Increases Loan Limits On Conforming Loans Due To Skyrocketing Home Prices

Conforming loan limit for 2022 

The official data for the loan limit in 2022 should be announced on November 30, 2021. Most experts believe the increased baseline conforming loan limit will increase to $625,000 and to nearly $1 million in high-cost markets. The conforming loan limit for 2021 is currently set at $548,250 and $822,375 in the high-cost regions of the country such as San Francisco. These higher loan limits will be in effect on January 1, 2022, but many lenders are already able to offer higher loan limits. Certain stipulations may apply. The increase in the base loan amount is based on HPI or the home price index. As homes across the nation rose on an average of 18.2%, so does the conforming loan limit. The increase in loan limit is designed to make it easier and cheaper for buyers to secure a mortgage under the rules of Fannie Mae and Freddie Mac. Anything above this limit will require a jumbo loan which can come with higher interest rates and closing costs. Fannie Mae and Freddie Mac are government-sponsored entities that are in charge of creating mortgage guidelines on conventional mortgage products. In 2019, Fannie Mae and Freddie Mac purchased 42% of new mortgages and that number increased to 60% during the pandemic. The increase in mortgage purchases by Fannie Mae and Freddie Mac as part of the CARES Act. The Federal Reserve has sent out plans to taper their new purchases of mortgage-backed securities. All indications look like this tapering process will increase mortgage interest rates in the near future.

Many Homebuyers Are Getting Priced Out Of The Housing Market Due To High Home Costs

Getting Priced Out Of The Housing Market Due To High Home Costs

As homes cost more, a borrower needs to be able to have a higher loan amount. Each year the FHFA or Federal Housing Finance Agency collects nationwide data for the previous year and compiles a report. This report is called the home price index and if you look at market trends, the increase in the past 12 months is substantial. The possibility of a conforming loan limit increasing $100,000 in a single year is mind-boggling. Typically, you see an increase of $10,000 – $20,000 per year. However, home prices are currently through the roof. Many experts feel appreciation will slow down but continue at a more standard pace. So the increase from the year 2021 to 2022 may be the highest on record.

If you are in the market for a conforming mortgage loan, please reach out to the experts at Gustan Cho Associates today. For specific questions please contact Mike Gracz at 630-659-7644. You may also email us directly at [email protected].  When the official 2022 loan limit is released, our team will update our readers. We encourage you to reach out to our highly skilled team today with any questions you may have on the current housing market.

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