Analysts Say Home Prices Are Going to Keep Going Up

Latin descent realtor with home for sale.
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The white-hot housing market has largely been proclaimed by major media outlets as having “peaked.” Forbes said that housing prices peaked in June, while Reuters estimated back in July that a peak in the market had already been reached.

See: What Homes Will Be Worth in Your State by the End of 2021Find: How to Refinance a Mortgage

Indeed, home prices were up 17% in June from the 12 months prior. The market has seen such a surge that over 50% of homes have sold above their asking price in 2021. 

After the June high, the number of new mortgages and homes sold cooled slightly, leading many to believe that the housing market had finally begun its downward course. 

Ed Pinto, director of the American Enterprise Institutes Housing Center and former chief credit officer for Fannie Mae, believes otherwise, Fortune reported.

See: 50 Housing Markets That Are Turning UglyFind: Zillow Shares Drop After Home Value Leak & Sell-Off Announcement

In a conversation with Fortune, Pinto said, “Over the past three or four months, we’ve heard lots of hand-ringing about a buyers’ strike, talk that people aren’t buying as many homes as before … That’s a fake narrative.”

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Although he agrees prices have come off slightly, he noted that autumn ushers in a different kind of market than the one seen during the summer — but nonetheless, still high. He said that June is always a high month for home sales, as buyers need to close on homes by the end of summer in order to get their children into a new school. “That’s when we always see peak purchase volumes as measured by [the] number of new loans,” he told Fortune. The normal seasonal regression of home sales has, perhaps, led many to prematurely call a peak in the market.

“What matters is that purchase volumes are extremely high for this time of year,” he said, meaning that although home prices have followed the normal seasonal pattern of slowing down after a summer rush, they are still at historic highs.  

See: The Pros and Cons of Waiting Out the Hot Housing MarketFind: No More ‘Slow Season’ as Home Sales See Largest Numbers Since January 2020

Buying activity is well above the numbers in the fall of 2019, which means that 2021 is “really strong,” Pinto said. Purchase volumes for the week of Oct. 18-24 stood at 54% above the same week in 2019. 

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Pinto projected a 14%-16% increase in housing prices for November and December, noting that just like the inflation surge that seems like it is here to stay, the “explosion in home price appreciation isn’t transitory.”

Easy money policy by the Fed and a tight supply of homes for sale have, and will keep, prices up until one or the other gives in. Low interest rates and accommodative stances by Fannie Mae and Freddie Mac, which have made policy changes to make it easier to buy a home, have created more demand than supply can keep up with. 

See: Zillow Finds 2M Renters Can Afford to Buy Homes Thanks to Remote Work During COVID-19 PandemicFind: 5 Ways to Get a Mortgage Even If You Don’t Meet Income Requirements

Many banks sell their loans of less than $548,250, which is the current conforming loan limit, to Fannie Mae or Freddie Mac. The bank lends the money to a homebuyer after Fannie or Freddie offers conditional approval — which can happen in minutes with automated underwriting — pending verification of the buyer’s qualifications, knowing the agency has already promised to buy the loan. In some cases, automated underwriting even lets the lender waive the appraisal. 

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These accommodative stances are due for a change, as runaway inflation seems to be forcing the government’s hand much sooner than it had hoped. 

The Federal Open Market Committee meets today to speak on whether or not to begin its bond-tapering programs sooner than first anticipated. Bond markets have already reacted, with the Treasury yield curve inverting last Thursday in anticipation of central bank moves toward slowly raising interest rates for the first time in almost a decade. 

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