The Effect of Rising Rates Have on The Real Estate Market

One of the main topics you hear of today is rising interest rates. It affects so many aspects of our lives and is one of the ways the Federal Reserve balances out economic inflation. When inflation is too high, they raise rates to slow down the economy. When inflation is too low, they will lower rates to stimulate the economy. When it comes to real estate interest rates dictate the mortgage rates lenders will give you when you want to borrow money for a home.

At the beginning of 2022, the country saw a big jump in interest rates in a short period, which caused the average 30 yr fixed-rate mortgage to jump over 4.0%. As we all know, this is something a lot of people have been expecting due to the increase in inflation throughout the United States. So, what does that mean for you as a home buyer?

To start, it is not very likely that interest rates will go down to below 3% like they were back in 2021. Moreover, home prices continue to rise due to a shortage of housing inventory. All of this has decreased overall home affordability. So, unfortunately, it does mean that as a home buyer, the cost of a home that you can afford has gone down. In reality, interest rates are not the biggest problem. It is the inventory of houses. While rates are much higher than everybody experienced in 2021, they are pretty similar to the rates in 2019, and most people said 2019 was a “normal” real estate market.

One thing that people hope increasing mortgage rates do is to slow down buyer demand. Because that may be one of the only ways to slow down this real estate market. Another thing is that it would be very difficult to build, or find, the number of homes needed to feed the number of home buyers right now. However, what has happened is rising interest rates put more fear in homes buyers of rising interest rates as 2022 comes and made them more aggressive than expected.

One good thing is that we are technically in one of the slowest times of the year for real estate. Also, home builder permits have increased. Both bring some hope as to what housing inventory will look like in 2022. While it will not be enough to supply all home buyers, it will help. As for home buyer demand; It will largely depend on what the Federal Reserve decides to do with interest rates.