After a long period of ever so low interest rates, many buyers are now facing rates around 5% for the first time since before the coronavirus pandemic. While sub-3% rates were initially a boon for homebuyers and refinancers, higher rates could actually be a blessing in disguise for our overheated housing market. Sounds a little counter intuitive, but let’s take a close look.
Rates will likely continue to “go up” which could put a damper on housing affordability, however, this cloud will not be without its silver lining when consideration is given to this highly competitive market, its record high home prices, and dwindling inventory.
“Rising rates may help tamp down demand som what to the point that it would help the housing market look more normal,” says Ralph McLaughlin, chief economist at Kukun, a real estate and data analytics company. “Because we are certainly in an extremely abnormal market.”
Below a list of ways that higher rates may create some normalcy…
1. Slower home price growth
Last year, home prices increased by nearly 20%, driven by a lack of supply and high demand. Now, as rising rates make monthly mortgage payments less affordable, home price growth could cool down as a result.
2. Less competition
Higher rates mean that some potential homebuyers will be priced out of the market. This is bad news for those people, but good for the buyers that remain.
3. More housing stock
As demand slows, homes should stay on the market a little longer, giving inventory a chance to build and easing the supply crunch a bit.
4. Better savings rates
Home prices aren’t the only economic indicator increasing rapidly. In February inflation reached 7.9%, the highest rate of consumer price growth in 40 years. The war in Ukraine and the resulting sanctions on Russia threaten to boost inflation even further, particularly the ban on oil imports that is already pushing gas prices higher.
“Mortgage rates would have to increase as high as 7% to 8% for a sustained period before home prices might actually start to decline, says McLaughlin. For now, remember that while rates are not as low as they were a year ago, They’re still pretty darn good,” he says.
For Karen’s expert opinion on mortgage rates, or to contact one of her recommended mortgage professionals, visit Salter’s Sources, where you will find trusted professionals who can advise and help you with all aspects of your home buying and selling.
