How to Prepare for a Slightly Cooler Summer Homebuying Season, According to 3 Experts

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Summer 2022 homebuying season is here, and experts predict it to be a busy one. But slightly cooler than the hot spring season.
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SUMMER 2022 HOMEBUYING SEASON PREVIEW

Main Takeaways for Buyers

  • It’s expected to be a strong seller’s market, but cooler than what it has been.
  • Home prices aren’t forecast to drop, but are likely to rise at a slower pace.
  • Real estate trends are local. Work with an agent that is knowledgeable in the areas you want to purchase or where you’re selling your home.
  • To avoid house buying FOMO (fear of missing out) and panic buying, know what you can afford and stick to a realistic budget. 

Main Takeaways for Sellers

  • It will still be a strong seller’s market, but not as intense as it was earlier this year with a smaller likelihood of a bidding war driving up your sale price.
  • Get ahead of preparing to sell your home. A local agent can help decide what repairs and upgrades could help with the sale. 
  • Some markets, or sub-markets, may be stronger or weaker than others.

Homebuyers haven’t had an easy go of it the past few years, but there are signs the peak seller’s market is behind us.

This past spring homebuying season, we’ve seen skyrocketing mortgage rates and rising home values. Both have increased the costs to purchase and own a home. “What we are likely to see is that fewer buyers will be able to afford this housing market,” says Dr. Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors. As bad as this situation is for some buyers, it’s a silver lining for those that remain as the competition is expected to moderate this summer.

This summer’s housing market will still firmly be a sellers market. Buyers aren’t likely to have the upper hand in negotiations or have an easy time finding deals. But buyers should have more time to view homes and craft their offers in some markets. 

Less competition doesn’t mean homes prices will drop. Housing inventory is still exceptionally low and demand is likely to stay strong. Rather than seeing prices drop, they are expected to grow, but at a slower pace.

If you’re planning on buying or selling a home during the summer 2022 homebuying season, here’s what three experts believe the real estate market to look like and what you can do about it.

What Three Experts Are Saying About the 2022 Summer Homebuying Season

Selma Hepp

Selma Hepp, deputy chief economist at CoreLogic

A slowdown in activity due to higher rates.

Our forecast is for a gradual slowing of home price growth down to single-digit appreciation a year from now, Hepp says. That level of home price growth is roughly half of what we have seen. You’re going to see fewer bidders and homes won’t be selling over the asking at the rate they are right now, she says.

Tendayi Kapfidze

Tendayi Kapfidze, chief economist at US Bank

A strong housing market, but with slower home sales and price appreciation

With low housing inventory, low unemployment, wage growth and a large demographic of buyers entering their peak homebuying years, the housing market should stay strong. However, rising interest rates are, “making things less affordable for a lot of people,” Kapfidze says. This leads Kapfidze to expect slower home sales and smaller price appreciation, but still a very strong housing market.

Dr. Jessica Lautz

Dr. Jessica Lautz, vice president demographics and behavioral insights for the National Association of Realtors

Fewer buyers, but low inventory

“We are already starting to see signs that the market is moderating,” Dr. Lautz says. This summer it is likely that fewer buyers will be able to afford a home because of rising interest rates and increasing home prices. While unaffordable housing isn’t a good thing, it does mean that buyers still in the market may have more time to find the perfect home. However, even with fewer buyers, Dr. Lautz says demand will stay strong and inventory will be tight.

What Homebuyers Can Do About Rising Mortgage Rates and Home Prices This Summer

Mortgage rates have risen dramatically in the last few months and now are roughly double the all-time low we saw last year. We weren’t thinking rates would be here, says Hepp. Experts say one major factor behind rising rates is exceptionally high inflation. The most recent data by the Bureau of Labor Statistics shows inflation at 8.5% in July which is lower than June’s 9.1%, a sign that inflation is starting to cool. In an effort to rein in inflation, the Federal Reserve increased its benchmark short-term interest rate by 50 basis points in May and by 75 points in June. Since inflation remains higher than expected, the Fed has raised rates by another 75 points in July

Experts agree not to time the market based on what is going on with interest rates, but purchase a home when the time is right based on your personal circumstances. “Don’t try to time the market,” Jodi Hall, president of Nationwide Mortgage Bankers told us. “You can’t play the game that you’re betting on the interest rates dropping before you lock, or you’re locking to prevent what might be tomorrow,” she said. Interest rates rise and fall over time making refinancing an option when mortgage rates dip again. 

Today’s rates are hovering between 5% and 6%. From a historical perspective, this isn’t an abnormally high rate environment since it was only a few short years ago when a “good rate” was around 5%. However, home prices are rising, too, making homebuying less affordable to many. 

As you prepare to start the home shopping process, here are some tips to make sure you can secure the best mortgage rate offer in any market:

Compare Mortgage Lenders

One of the best ways to offset rising rates in the short term is to shop around for your mortgage loan. Don’t talk to just one lender because the spread in mortgage rates can be upwards of 50 basis points (0.5%) between lenders, Kapfidze says. 

The median U.S. home listing price hit $447,000 in May 2022, an all-time high, according to data from Realtor.com. If you can reduce your rate by 0.5% you could easily cut your monthly mortgage payment by over $100. By comparing offers from multiple lenders, you’ll also be able to choose the offer with the smallest amount of upfront fees, which could cut your out-of-pocket costs by hundreds or thousands of dollars.

Don’t Buy at the Upper Limit of a Preapproval Budget

Regardless of what interest rate you end up with, having a monthly mortgage payment you can comfortably afford for the long term is vital. Before you start shopping for a house, get preapproved, and then create a homebuying budget to determine how much you can afford to pay each month. Then stick to it. Just because a lender is willing to lend you a certain amount does not mean you have to borrow that much. 

It’s best not get caught up in the emotional side of things and feel that you have to get this house, Kapfidze says. Going above a realistic budget could create challenges for you in the future. Experts recommend limiting your mortgage payment to no more than 28% of your pretax monthly income.

Build Your Credit Score

As you begin the homebuying process, start by focusing on your credit score. People often think of the credit score in terms of loan approval, but it also affects your interest rate, Kapfidze says. The higher your credit score, the lower your mortgage rate will be. “If you’re still a few months away from buying, you probably have some time to actually improve your credit score,” he says.

Review your credit reports to ensure everything is accurate and all potential issues are resolved. As you’re saving for a down payment, you may also want to pay down revolving debt, such as credit card debt. This would lower your credit utilization ratio and boost your credit score.

Look Into First-Time Homebuyer Programs

Qualified first-time homebuyers can utilize these programs to help offset the overall cost of homebuying. First-time homebuyer programs could help with down payment assistance or closing costs. The higher the down payment you have, typically means the lower the interest rate you can earn. To see which programs may be available in your state, and qualification requirements, see NextAdvisors guide for first-time homebuyer programs by state. 

Expand Your Home Search Criteria 

When homeshopping, don’t limit yourself to one specific area. Keep an open mind to include the lesser-known areas. Housing prices have sub-markets and sometimes you can find a great house for a cheaper price outside of urban areas. Also, consider a fixer-upper over a turn-key ready home. Fixer-uppers and cheap old houses will take a lot more work, and additional renovation loans, but usually come without the competition and bidding wars we see with turn-key ready homes. 

Consider an Adjustable-Rate Mortgage

Adjustable-rate loans (ARM loan) were not a useful mortgage product when mortgage rates were at record lows. But since mortgage rates are no longer considered “low,” ARM loans have become more attractive. With an ARM loan, such as the 5/1 ARM for example, you get a “teaser rate” for the first five years, lower than the current market rate, and then switch to a variable market rate after the five year teaser period. “Follow where rates are and when interest rates come back down take advantage of the opportunity and refinance into a fixed-rate,” Melissa Cohn, regional vice president at William Raveis Mortgage told us

Preparing to Sell During the Summer 2022 Homebuying Season

Sellers shouldn’t have a hard time selling their homes in this summer’s real estate market. But sellers may need to prepare for the summer housing market by adjusting their expectations.

There are reasons to believe it won’t be as easy for sellers as it was during the last couple of years. Housing inventory is expected to grow and with fewer buyers in the market, “sellers have to contend with the idea that they won’t necessarily be getting that premium [in sales price] that they were expecting,” Hepp says. With that in mind, home prices aren’t expected to decrease, only to rise at a slower pace.

When preparing to list your home for sale, take the local market conditions into consideration. The rise of remote work has shifted demand from large cities to smaller metro areas, so one area could have much different demand than another. Work with a local real estate agent to ensure you’re pricing your home competitively.

A local agent can also help you decide what, if any, updates or repairs to complete before listing your home. “People have been binge watching a lot of HGTV in the last couple of years,” Dr. Lautz says. “They may have expectations that your home is really going to look beautiful and shine.” You’ll have an easier time getting offers for your home if you know what buyers are looking for in your market and you can focus your attention on those things.

How to Compare Home Loans

Whether you are looking to purchase or refinance, you can compare lender offers here using this Home Loan Comparison Tool. You can enter in the loan amount, rate, fees, and term for each offer and see a true side-by-side comparison of your potential monthly mortgage payment and how closing costs, lender fees, and interest rates play out over time with each loan offer.

Home loan comparison calculator

Compare your payment options side-by-side to see which is right for you and your financial situation.

Find the mortgage that’s best for you by comparing the cost of multiple loans over time.