In 2021, the housing market was red-hot, and many people who wanted to buy a house were forced to put their plans on hold when home values dramatically increased. We’re now starting out in a similar position this year – only without record-low mortgage rates to help compensate for increasing property values.

The median sale price of a pre-owned home as of January 2022 was $350,300, according to the National Association of Realtors. That’s a year-over-year increase of 15.4%.

It’s evident that demand is still strong for buyers to be paying such a premium for houses. But will this trend continue into 2022? Will demand for houses finally start to fall in the second half of the year?

Higher mortgage rates might cause buyers to flee.

The current 30-year mortgage rate is about 4.5 percent, which is far more frightening than the 3.5% mark it reached in 2021. With home values presently so high, a 4% loan apparently doesn’t seem that bad right now.

But it isn’t simply that mortgage rates are presently increasing. Rather, borrowers should anticipate rates to rise even more in the years ahead as a result of the Federal Reserve’s actions. We can thank the Fed for that.

The Federal Reserve increased its federal funds rate recently and is expected to do so again this year. While the Fed does not determine mortgage rates, its actions have an impact on them. As a result, it’s reasonable to assume that borrowers will pay more to finance a house in the near future.

It’s also reasonable to assume that higher mortgage rates will result in a portion of buyer attrition. It’s too soon to tell whether the retreat is severe enough to have a significant effect on home values. However, there’s a chance that prices will gradually fall throughout the year as a consequence of this pullback.

Of course, the amount of homes on the market will also influence home values. Now we have a classic low-supply, high-demand scenario that is working in favor of sellers. However, if more properties become available this year, purchasers will regain some bargaining power, pushing home prices in a more favorable direction for those on the buying side.

Cash offers will continue to be king

Even if your goal is to buy a house as a place to live or as an investment property, one thing you should know is that cash reigns supreme in today’s market. Even if you have to mortgage it later on, making a cash offer on a property gives you an advantage over competing bidders who must rely on financing to complete a real estate purchase.

However, today’s market may make cash offers more difficult to come by. Many real estate investors also invest in stocks when a need for money arises. Right now, with the stock market being down, selling off assets to free up funds for a house purchase is not a good idea. If you’re able to offer cash, though, you’ll improve your chances of winning over other bidders when housing inventory is still at a low.

Author: Blake Ambrose

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