Some homebuyers may feel the need to jump into the market quickly to avoid future interest rate hikes.
Fear of missing out on low rates and the potential loss of house-buying power could supercharge the housing market ahead of the spring home-buying season, said First American Financial Corp., Santa Ana, Calif. The company’s monthly Real House Price Index reported real house prices increased by 1.5 percent between October and November, and by 21 percent year over year—the highest annual percentage reported by any index. The report noted real house prices are 5.6 percent less expensive than in January 2000. While unadjusted house prices are now 42.7 percent above the housing boom peak in 2006, real, house-buying power-adjusted house prices remain 33.8 percent below their 2006 housing boom peak.
“While rates are expected to increase steadily throughout 2022, many potential home buyers may try to jump into the market now before rates rise further,” said First American Chief Economist Mark Fleming. “The fear of missing out, or ‘FOMO,’ on low rates and the potential loss of house-buying power may supercharge the housing market ahead of the spring home-buying season. However, housing supply tends to increase in the spring months as more sellers list their homes for sale. While home buyers may have FOMO because of rising rates, they may not want to succumb to the fear of better options, or ‘FOBO,’ because there may be a better home option or options when there’s more homes for sale, even if it means they may pay more.” Fleming said affordability is likely to decline further in 2022, because both mortgage rates and nominal house prices are expected to rise. “The Federal Reserve has signaled the end of the easy money era is near,” he said.
Source: MReport