Housing is becoming increasingly unaffordable for millions of Americans – as home prices and mortgage rates continue to rise (See the lowest prices you may be eligible for right now here). So – as part of our series Where we asked prominent economists and real estate professionals what they think of the housing market right now – we spoke to Mark Fleming. Fleming — chief economist at First American Financial Corporation for property, settlement, real estate data and risk solutions — has analyzed and forecasted the real estate and mortgage markets for 20 years. Prior to becoming Chief Economist at First American, Fleming developed insights and analytical products for CoreLogic as well as valuation models at Fannie Mae and today his research experience includes real estate, urban economics, and mortgage risk. So we asked Fleming: What do sellers and buyers today need to know about the housing market?
Mortgage rates are higher, but still not high
Although it’s much higher than it was three months ago, reducing the purchasing power of homes, it’s about 6% for a 30-year fixed mortgage, which Fleming says is a far cry from the upside. “Mortgage rates are higher, but by historical standards they are not high,” Fleming says. has a point: this is The graph from the St. Louis Federal Reserve shows the curve of mortgage rates since 1975. (See the lowest rates you may be eligible for here.)
Affordability is an increasing challenge for buyers
Home prices have been rising rapidly in the past two years. In fact, according to data from the National Association of Realtors, the median sale price for an existing home is up 17% from a year ago. “This is important because it has been virtually impossible to keep up with the ability to buy homes, and therefore, affordability is declining,” Fleming says.
Fleming says home price increases, as measured by many of the home price indices reported in the media, have a significant lag, sometimes up to six months. “It will be a few more months before home price indices reflect how prices reacted to the rapid increase in mortgage rates in the second quarter,” Fleming says.
Get ready for slower home price growth
But just because affordability is a challenge, that doesn’t mean home prices will fall. Fleming says his research shows that during periods of high mortgage rates as we’re going through right now, the number of home sales tends to go down but home prices generally don’t. “Less sales and reduced price increases are the expectation,” Fleming says.
Housing market cools down
Monitor inventory levels and the amount of seller price reductions in listings. These are the main indicators that show where prices are going and how the increase in mortgage rates has affected demand. “More inventory and more seller price reductions indicate a calming market,” Fleming says. For sellers, this means a reset on the expectation of how quickly their home will sell. “Just a few days in the market was not normal at all. In fact, the old adage was that sellers should normally expect their home to take up to 3 months to sell on the market. Of course, we are still a long way from that, but sellers Expect their homes to take longer to sell. For buyers, expect less fierce competition to buy a home,” says Fleming. (See the lowest rates you may be eligible for here.)
Think ARM and be a smart shopper
Looking at the current market, Fleming says it’s easy to lose focus amid shifts in mortgage rates and other housing dynamics. “The truth is that some of the basic steps remain important and they are not very different from any market. Shop for the best mortgage and in a high rate market, check out adjustable rate mortgages for low rate interest. Make your choices based on the home as a shelter, rather than of ROI opportunity and be patient,” Fleming says.