The weather isn’t the only thing heating up as summer months approach – the housing market continues to see home prices rise, too. (iStock)
The weather isn’t the only thing heating up as summer months approach – the housing market continues to see home prices rise, too. It's a phenomenon that's preventing less-interested home buyers from being able to purchase a home and leading some economists to wonder if the housing market is heating up too quickly.
The past year brought record-breaking activity to the housing market, most of which was driven by mortgage refinances in addition to an uptick in interested home buyers. From record-low interest rates to a sudden need for more space due to coronavirus-driven stay-at-home orders, home-buying activity peaked to all-time highs in cities across the U.S. And as remote work made geography less of a factor, smaller towns typically seen as vacation getaways saw a sudden wave of interested home buyers.
The rush of demand has caused home prices to soar, significantly benefitting homeowners looking to sell or even consider cash-out refinances, which have increased over the past year. If you’re interested in utilizing the equity gains on your home, visit an online marketplace like Credible to view refinance rates and get cash out.
WHAT WILL HAPPEN TO HOME PRICES IN 2021 — HOW BUYERS AND SELLERS CAN PREPARE
Homes in short supply vs. sky-high demand
As the demand for home continues to grow, the supply of new homes has been unable to keep up. The latest existing home sales report from the National Association of Realtors (NAR) shows existing home sales decreased 2.7% in April to an annual projection of 5.85 million home sales. That's the third consecutive month home sales have dropped, although they are still up 33.9% from last year.
"Home sales were down again in April from the prior month, as housing supply continues to fall short of demand," NAR Chief Economist Lawrence Yun said. "We’ll see more inventory come to the market later this year as further COVID-19 vaccinations are administered and potential home sellers become more comfortable listing and showing their homes. The falling number of homeowners in mortgage forbearance will also bring about more inventory."
Economists say that economic growth in 2021 has been stronger than expected. So strong, in fact, that some are beginning to warn of the risk of inflation. If economic growth continues at its current pace, it could cause interest rates on products such as personal loans, student loans and mortgage refinances to rise.
If you're interested in refinancing your mortgage before interest rates increase, visit Credible to find your rate and view loan options across multiple lenders.
HERE'S WHY MORTGAGE RATES ARE ON THE RISE
An economy that's too hot to handle?
Some economists are now beginning to wonder if rapidly rising home prices are causing the market to heat up too quickly and even introduce the danger of overheating.
Fannie Mae recently increased its 2021 growth prediction to 7%, up from its previously forecasted 6.8%. While this growth forecast is positive, there are negative risks in the mortgage giant’s predictions.
"Stronger inflation and a resultant move in interest rates are risks that we believe should be monitored," said Doug Duncan, Fannie Mae senior vice president and chief economist. "As the effects of expansionary monetary policy continue to work their way through the economy, inflationary expectations may continue to rise. This could lead to prices rising further even with growth concurrently slowing in the presence of diminished labor market slack and waning fiscal policy support.
"If such a scenario were to play out, the question then becomes whether this necessitates a response by the Federal Reserve," he said. "While momentum in the housing market will likely continue in the near term, this is an increasingly important consideration for 2022."
To take advantage of today’s low interest rates, you can use Credible's free online tool to easily compare multiple lenders and see prequalified rates.
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