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The State Of The Housing Market

Kevin Graham9-minute read

June 02, 2022


If you’re trying to buy a home or you want to refinance your current mortgage in the near future, it’s important to be aware of the state of the housing market. It’s just as key to understand local market dynamics if you’re looking to sell. In this report, we’ll be taking a look at everything from rates to inventory and home equity.

Before we get there, let’s take a minute to run through how this report was put together.


The numbers listed in this article are national in scope. Data was gathered from various sources including the Federal Reserve, Black Knight – a software provider for mortgage servicers, the U.S. Census Bureau and National Association of REALTORS®.

Although this post isn’t meant to touch on local markets, the axiom that real estate is about location, location, location is as true today as it ever was. Given this, we’ll go over some resources to provide a much more accurate picture of market conditions in your own area throughout this post.

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Interest Rates

There are a number of personal factors that impact your interest rate. Two of the biggest ones are your down payment – or the amount of equity left after your refinance – and your credit score.

However, they’re just as impacted by market factors. It’s for this reason that timing can be key when buying or refinancing. Let’s look at a few of them.

Federal Funds Rate

The federal funds rate is the rate at which banks borrow from each other overnight. It’s controlled by the Federal Reserve. The important thing to know here is that if it’s cheaper for banks to borrow money, it’s also cheaper for consumers.

Similarly, if giving funds becomes more expensive, it becomes that much more costly for a client because the increases tend to be passed through.

Over the course of the pandemic, the Federal Reserve chose to keep the fed funds rate at rock-bottom levels between 0% – 0.25%. The idea here is to stimulate the economy by making interest rates as low as possible, which makes it easier for consumers to borrow and spend.

Inflation has been a major issue recently. There are several factors that go into this including various macroeconomic events we’ll get into in a minute, but the one the Fed has control over is the federal funds rate.

If you make it cheaper for people to borrow money, more money ends up circulating. This is good because it allows people to spend, but on the other hand, it means the money already out there is worth less because the supply is plentiful. This traditionally leads to higher rates of inflation.

By raising short-term interest rates, the Fed makes it more expensive for banks to borrow money. When they do this, the bank is predisposed to more tightly hold onto the money it already has. When this happens, they start paying people who have money in the bank higher interest rates so the interest you receive goes up.

The downside of this is that interest rates are higher if you’re looking to borrow money, including for mortgages.

On March 16, the Federal Reserve moved the range for the federal funds rate up 0.25% to a range of 0.25% – 0.5%. Moreover, the median expectation for the federal funds rate by the end of the year is for it to be around 1.9%. The Fed tends to like to raise rates 0.25% at a time.

In order to get the Fed funds rate into the 1.75% – 2% range implied by the projection, the Fed will need to raise rates at every meeting for the rest of the year if they keep raising it in 0.25% increments.

Although mortgage rates and other longer-term rates don’t exactly match up one to one with shorter-term rates, they do follow the same general direction. So as the federal funds rate goes up, mortgage rates usually go up with them.

Mortgage-Backed Securities

Mortgage rates are based on mortgage-backed securities (MBS). MBS are investment vehicles made up of mortgages. You can think of an MBS as being made up of 1,000 or more loans that have similar attributes. For example, you might group together conventional loans for primary homes with qualifying credit scores of 720 or higher.

The better your individual qualifications, the better your rate will be. However, it’s also impacted by market interactions. Mortgage-backed securities are sold in the bond market. Bonds are considered safer investments because they have a guaranteed rate of return. Moreover, mortgages are considered really safe because they have either a government guarantee or an implied government guarantee in most cases.

So why not invest in bonds and mortgages at all times? While they have a guaranteed rate of return, it also doesn’t change. They aren’t great investments in times of higher inflation.

Additionally, if you think the economy is doing well, you’re more likely to invest in stocks. These offer a better rate of return, but also a higher risk of losses because you’re betting on company performance in addition to market sentiment that can be fickle.

Now that we have higher inflation, many investors are looking to other places than the bond market. This means that in order to attract investors, the bond yield has to be higher, leading to higher mortgage rates.

The Fed is also involved here as well. Because housing has such a big role in the economy (depending on the year, 15% – 18% of U.S. gross domestic product), the Fed was buying huge amounts of MBS in order to help keep rates down during the economic recovery.

By far the biggest holder of MBS, as of this writing, the Federal Reserve had $2,708,402,000,000 (yes, that’s trillion). Additionally, they were buying more every month. They’ve stopped doing that.

However, one of the things they also want to do soon is start to get these MBS off their balance sheet. This would allow the Fed to have the resources to follow a similar strategy of purchasing MBS in the event of another economic crisis. The Fed has signaled that they would like to begin getting these holdings off their balance sheet shortly.

When the Fed begins selling off, that major investor is gone. In order to make up the volume, rates will have to go up to raise yields and attract other investors.

Macroeconomic Events

Many people have probably heard the question, “What’s that got to do with the price of tea in China?” The idea behind this question is that as the economy has become fully globalized, far-flung events like military conflicts halfway across the world affect gas prices here in the U.S., as one example.

Most recently, Russia has invaded Ukraine. This has attracted international condemnation. There is a movement afoot to make sure that Russia suffers the consequences of its actions. Because of this, the U.S. has stopped buying Russian oil. As a result, not only has the price of gas shot up, but U.S. oil has become a very attractive investment. Some people who would normally invest in bonds have taken their money elsewhere. As a result, mortgage rates go up.

The other thing that’s having a big impact on inflation right now is that the supply chain is still getting back to normal post COVID-19 lockdowns. As a prime example, one only need look at the auto industry. When lockdowns started happening, auto manufacturers shut down the lines because very few people were buying cars.

The problem is the entire supply chain is connected. When cars stop being ordered, key suppliers of computer chips that went in cars put their energy and investment elsewhere. Once the orders restarted, those same suppliers had challenges switching the lines back. To this day, it’s hard to find cars on the lot and what is available is being sold at a higher price.

Auto is a very visible example, but there are stories like that across the economy and prices have gone up on a widespread basis. In the last 12 months, prices have increased 7.9% in one index from the Bureau of Labor Statistics. It’s the largest year-to-year increase since January 1982.

This matters because bonds, including mortgage bonds, aren’t considered especially attractive in times of high inflation. Investors like to be sure that there return is at least going to outpace price increases. As a result, yields on bonds have to increase. This pushes up mortgage rates.

Home Inventory

As rates go up, mortgage payments obviously go up, posing a challenge to affordability. One of the ways around that for buyers is to take a longer term. This could enable you to have a lower payment even at a slightly higher rate.

The bigger challenge for buyers right now, and the biggest opportunity for sellers, is the lack of inventory, particularly in the market for existing homes.

According to the latest data from the National Association of REALTORS®, inventory of existing homes was at an all-time low of 860,000 units. At the current pace of sales, every pre-owned home on the market would sell in 1.6 months. That’s also a record.

With such low inventory, these homes are commanding a premium. The median sale price of an existing home in January was $350,300. Moreover, buyers aren’t really balking at the prices. The average time on market is just 19 days.

Although to this point we’ve talked about national data, it’s worth noting that you can get an estimate of how much your home is worth from our friends at Rocket HomesSM 1,2.

The place where there’s not really an inventory problem is in the new home sales market. In the latest release from the Census Bureau, there was 6.1 months’ worth of supply. A market is considered in balance between buyers and sellers when supply is at 6 months.

However, you’ll pay even more for shiny and new. Homes that were just built had a median sales price of $423,300. The average price was even much higher at $496,900.

What’s going to be interesting going forward is how fast prices experience a bit of a correction. As rates go up and affordability is further challenged, prices won’t be able to rise as fast while still attracting buyers. As a seller, it’s going to be incredibly important to keep an eye on conditions in your area.

Rocket Homes displays a variety of trend data on the same page where you can see how much your home is worth. If the median sale price dips or if homes are staying on the market longer, it could be that the market in your area has tilted toward buyers. You can also see trends in the past year.

On the flipside, buyers can also take advantage of these trend reports if they have an idea of the city or ZIP code in which they’d like to look for a home. On either side of the transaction, information is power.

Another thing that can really help is having a trusted professional in your corner advising you. Whether you’re looking to buy a home or sell your place, a Rocket Homes Verified Partner Agent can align on your goals, and help advise you all the way through a successful transaction.

Tested. Trusted. Top-rated.

Visit Rocket HomesSM to get a proven real estate agent that’s handpicked just for you.

Home Equity

Not every transaction is about buying or selling a home. Sometimes you want to use your home to accomplish a goal. Your home is a massive financial resource. Every time you make a payment, or your home gains value based on favorable market movements, you get a little bit more equity in your home.

Equity is the difference between your home’s value and your mortgage balance. For example, if you have an outstanding mortgage balance of $200,000 on a $300,000 home, you have $100,000 worth of equity. Looked at another way, you have 33% equity in your home ($100,000/$300,000 = 0.33).

Lenders look at your equity in reverse, calculating something called loan-to-value ratio (LTV). This is your mortgage balance divided by your current home value. Using the example above, your LTV would be 67% ($200,000/$300,000 = 0.67).

This percentage can be key. In general, if you have more than 20% equity, you may be able to do a cash-out refinance in order to accomplish a home improvement like a bathroom renovation or a financial goal such as debt consolidation.

According to Black Knight, Americans were sitting on almost $10 trillion worth of tappable equity, defined by them as equity in excess of 20%. That’s an incredible source of financial flexibility.

It’s also important to note that even as rates rise, interest rates will be going up across the board. The thing about mortgages is that in any interest rate environment, they’re often the most cost-effective borrowing option because it’s typically the lowest interest rate you can get.

The Bottom Line

There’s no point sugarcoating it. Mortgage rates are headed up. But it’s not all bad news. If you’re looking to purchase, it’s important to note that as rates rise and homes sit on the market longer, the seemingly inescapable pressure cooker on prices will have some of the steam let out of it.

Meanwhile, if you’re looking to sell your home, it’s a seller’s market in many areas of the country. It could be a really good time to take advantage and capitalize on your investment.

Finally, if you’re looking for some value out of your home to accomplish a financial goal without moving, a cash-out refi could be right for you. Americans have incredible levels of equity available to them that could be used for home improvement or to accomplish any other financial goal.

Are you ready to buy a home or refinance your current one? You can apply online or give us a call at (833) 326-6018.

Take the first step toward the right mortgage.

Apply online for expert recommendations with real interest rates and payments.

1 Rocket Homes is a registered trademark licensed to Rocket Homes Real Estate LLC. The Rocket Homes logo is a service mark licensed to Rocket Homes Real Estate LLC. Rocket Homes Real Estate LLC fully supports the principles of the Fair Housing Act.

For Rocket Homes Real Estate LLC license numbers, visit RocketHomes.com/license-numbers.

California DRE #01804478

2 Rocket Mortgage, LLC and Rocket Homes Real Estate LLC are separate operating subsidiaries of Rocket Companies, Inc. (NYSE: RKT). Each company is a separate legal entity operated and managed through its own management and governance structure as required by its state of incorporation and applicable legal and regulatory requirements.

Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage, he freelanced for various newspapers in the Metro Detroit area.