This winter is seeing consumers feel more anxious about the housing market, with home prices continuing to rise and mortgage rates rising.

Fannie Mae’s monthly survey showed that January saw a drop in home purchases, which was the lowest since May 2020 when the pandemic began. It is clear that affordability has declined.  

A record-low 25% said that now is the best time to buy a property. Sixty-nine percent said it is a good moment to sell.

Prices for homes are rising and they are still increasing. CoreLogic reported that December saw prices rise 18.5% nationwide. This is an increase of 18.1% from November’s annual gain. Average home price appreciation was more than two-fold last year. It averaged 15% per year, as opposed to only 6% appreciation in 2020.

“Much of what we’ve seen in the run-up of home prices over the last year has been the result of a perfect storm of supply and demand pressures,” said Frank Nothaft, chief economist at CoreLogic. “As we move further into 2022, economic factors – such as new home building and a rise in mortgage rates – are in motion to help relieve some of this pressure and steadily temper the rapid home price acceleration seen in 2021.”

Prospective homebuyers Jerry and Tamara Carroll were touring an open house in Waldorf, Maryland, a few weeks ago and were already concerned about rising rates.

Tamara said, “Because at the beginning we looked at 2.75%. Now we hear about 4.1.”

Jerry described bidding warfare at all properties they saw, even though rates are rising.

He said, “We are being pressed and I know other people are as well, to obtain the highest interest rate possible because it is going up.”

Fannie Mae’s survey respondents expressed more concern over job stability as well as the future mortgage rates.

According to Mortgage News Daily, rates began increasing at the beginning of January. The average 30-year fixed rate is 3.78. This is just over one percent more than it was one-year ago. This rate is now 58 basis points higher that it was at the beginning of the year. It will continue rising as the Federal Reserve reduces its mortgage-backed bond purchases. The Federal Reserve’s support for the mortgage market just after the pandemic started kept interest rates at an all-time low for more than a year. This helped to fuel housing demand and boost prices.

Younger buyers are most worried about the current housing market. Both rates and prices for homes will rise more, they expect. Although younger consumers tend be more optimistic about their finances, the January survey found that they were less so.

Doug Duncan is chief economist for Fannie Mae. “All this points back at the current shortage of affordable housing stock. As younger generations feel it particularly acutely, they may be delayed in their homeownership aspirations if supply does not increase.”

Duncan predicts a slower pace of activity in the coming year.