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2021 was one of the hottest years on record for housing and it affected everything from home prices, months of inventory, days on market, to how offers are written. If you have been out in this market, you know how hard it has been to purchase a home.
Taking these factors into consideration, what does the first quarter of 2022 look like compared to the first quarter of 2021? For the first quarter of 2022 the DC metro area saw a 9.7% increase in pricing, up from the first quarter of 2021 and a 2.2% increase, up from Q4 of 2021 to Q1 of 2022. With the rising prices and interest rates, should you buy now?
- Housing is an asset that grows in value – Individuals who purchase have a higher net worth than those who continue to rent. Over the last 10 years nationwide homeowners have seen an average net worth growth of over 240k. If you purchased 5 years ago your net worth growth would be on average 125k higher.
- Mortgages vs rent help stabilize housing costs – With a fixed interest rate your housing costs stay the same. Property taxes may increase but the main housing price remains the same. Yearly rents are increasing with inflation. At some point it may cost more to rent than to own. You have no control over rent going up. With a real estate asset, it gets more valuable over time. This makes purchasing a good way to gain wealth during a time of inflation.
We have seen record low interest rates over the last two years due to the pandemic. These low rates were never meant to be sustained over a long period of time. They were a tool used to stimulate the economy. These low rates, combined with low inventory, would have eventually flooded the market buyers and priced many consumers out of the market. The rapid increase of pricing would have made properties out of reach even with low interest rates. At some point this needed to change. Eventually, banks would have artificially started raising rates in order to make money. Yes, rates are higher than they were the last two years, however, they are only slighter higher than they were in 2018. In 2018 the yearly average interest rate was 4.54%. While the interest rate was high those homeowners have also gained a significant amount of wealth. This has allowed those homeowners to now have the capital to move up to a larger home.
The interest rates increasing have helped the market and buyers. It has lowered the competition. We are seeing less offers on properties and more offers with contingencies. Homes are sitting on the market a little while longer and there is no longer a frenzy of price increases. For sellers, properties are still selling in a relatively quick manner. Average days on market have increased to 20 days as opposed to 5 days. We are looking at moving towards a balanced market as opposed to a sellers’ market. This move is good for all parties to a transaction.
The question to ask is, can you afford to not have your net worth increasing over a 3–5-year period? Take advantage of the market with less competition and make the move to homeownership. In the long run, it is more cost-effective than continuing to rent.
If you are interested in purchasing or selling a home, have questions, or would like to gather more information, please feel free to reach out to discuss.
