Interest rates are rising: What does this mean for you?
Let’s answer that question with an analogy. The party might not be over yet, but the bartender just screamed last call. In this case, the bartender is Federal Reserve Chair Jerome Powell, and the party is the historically hot housing market we’ve experienced over the past two years. Just last month, the Fed raised interest rates for the first time since 2018 and signaled six more increases this year to tamp down skyrocketing inflation. Mortgage rates jumped from 3% to 5% in the month since, the highest they’ve been since 2011. What does this mean for buyers, sellers, and other stakeholders in the real estate industry? Find out below!
How will the market respond?
According to Lawrence Yun, chief economist of the National Association of REALTORS®: “Higher mortgage rates will inevitably pull home sales down in the coming months and slow home price appreciation.” Yun projects a 10% decrease in home sales in 2022 while home prices will continue to rise by 5%.
In the short term, prices are still rising even as mortgage rates increase because of a low supply of homes on the market. Since the 2008 financial crisis, sheepish developers have built fewer homes than demanded by the market. Then the pandemic caused higher construction costs, labor shortages, and supply chain issues that made it even harder to build houses, decreasing supply even more. With prices remaining elevated, higher rates could bring the market to equilibrium and away from the total seller’s market we’ve been living in for two years.
What does this mean for sellers?
While it has become the norm over the past two years, sellers may no longer experience immediate offers above the asking price for their homes. But don’t worry. If you’re planning on listing, it’s still a great time. The market should remain hot by any pre-pandemic standards, but let’s just say it may be a little less crazy out there right now.
What does this mean for buyers?
Higher mortgage rates will make it more expensive for buyers to borrow money. When combined with higher inflation, Yun believes buyers may need to seek homes $40,000 cheaper than one year ago. Mortgage Bankers Association economist Joel Kan believes that first-time homebuyers will be disproportionally affected by these higher rates as they are most susceptible to affordability challenges. However, good real estate professionals – your Realtor and our team included – still want to help buyers of all kinds realize their dreams.
What does this mean for our fellow real estate professionals?
Higher rates mean fewer home sales and refinances, frightening those across the real estate industry. Signs of a slow down, such as the 40% drop in mortgage applications from a year ago, are already appearing. It’s certainly not time to panic, but all of us in real estate know that when the market tightens, it’s more important than ever to focus on great customer service and building your brand. That’s why we like to use this blog to provide marketing tips and tricks and why we always aim to make the settlement experience a smooth operation for all involved! Contact us whenever you need a trusted title and escrow provider to deliver for you.