Thu 05/26/2022 – 15:26 | By: Van Arnold
While a slight rise in interest rates has slowed the boom in the US housing market in recent weeks, home values continue to rise at a record pace. How much longer will the trend continue?
University of Southern Mississippi (USM) finance professor Dr. Kimberly Goodwin expects a combination of factors to contribute to an inevitable downturn in the housing market.
“Rising interest rates slow the housing market as it becomes harder for buyers to qualify for mortgage financing and that financing becomes more expensive,” said Goodwin, director of USM’s School of Finance. . “The end of COVID stimulus payments by the federal government, along with such high levels of inflation, are likely to add to a slowdown in housing markets.”
Statistics show that home values in the United States have increased by 20.9% over the past year. Nationally, the median selling price of a home in the United States was $420,000, up 3.4% from March and 15.1% from April of the year last. In Mississippi, home prices rose 17.1% year-on-year in April.
“It’s definitely been a seller’s market,” Goodwin said. “Generally, sellers can expect to have multiple offers within a few days and sell at or above the asking price.”
Two years ago, before the pandemic hit, only a quarter of homes were selling above sellers’ asking price, according to data from real estate brokerage firm Redfin. In January of this year, the demand for homes far exceeded the supply. Interest rates that have fallen below three percent for an extended period have played a key role in the explosion of home purchases across the country. Yet other factors contributed just as significantly.
Goodwin points to an increase in discretionary income due to limited opportunities for travel and entertainment spending, coupled with streams of government stimulus payments as part of federal government COVID spending.
“Also, people spending a lot more time at home caused many of them to decide that their home didn’t meet the needs of their new reality in which they were working from home,” she said. “Lately, people tend to move away from urban centers and offices to have more space. It’s a complete reversal of pre-COVID trends.
Hattiesburg, home to USM, has seen a substantial increase in home prices and sales over the past two years. In April 2020, at the start of the COVID-19 pandemic, the median home price in Hattiesburg was around $192,000. By April 2022, the median price had jumped to just under $300,000.
Goodwin notes that it has been interesting to observe the housing market dynamics in Hattiesburg over the past two years.
“The demand isn’t coming from a large influx of people, but rather it seems like the current population is playing a game of musical chairs in the housing market,” Goodwin said. “The existing population has just moved into the larger Hattiesburg market. I wouldn’t say the market is grossly overvalued, but it’s important to understand that this level of house price growth is not sustainable over the long term.