As we make our way into the May of 2022, it has become clear that the glowing red real estate market is changing. Things are starting to cool off. There is starting to be more inventory available to potential buyers. Also, mortgage rates are on the rise. The average 30-year mortgage rate was sitting at 3.11% in December and has soared to 5.27% in May. This is the highest level since 2009!
The lack of available houses in the past couple of years has created an abundance of would-be buyers. With the rise of interest rates, some of these buyers are being priced out of being able to afford mortgage payments. For instance, if someone took out a $500,000 mortgage at a 3.11% fixed rate, that person would owe a monthly principal and interest payment of $2138 on a 30-year loan. However, at a 5.27% interest rate that payment would shoot up to $2767.
The Covid-19 pandemic is the main cause of the booming housing market. The federal reserve was forced to drop interest rates to historic lows to combat the plummeting economy at the time. They did the to aid the economy recover from the workforce being at a standstill. However, the pending threat of out of control inflation has caused the federal reserve to switch gears and artificially raise interest rates. By doing so, many of the buyers in the housing market have lost their mortgage eligibility.
The spike in interest rates has caused many buyers who were on the fence about purchasing homes to rush into the market with the hopes of locking in the lowest interest rates they can. Home buyers in the market believe that if they don’t buy soon, they may never be able to afford being homeowners. We won’t be seeing a “crash” like the one in 2008-2009, but after the dust clears there will be a noticeable drop in housing demand. This increase in interest rates should be a short-term boost to the market. Buyers should not expect home prices to fall any time in the near future.
Nobody gets results with wishful thinking. Unfortunately, those buyers out there waiting for a crash may be watching the pot boil. Rising interest rates could eventually be a good thing for the market. There will be a gradual stabilization. Exercise logic if you’re in the market. Don’t be house poor, and make sure you can afford what you’re signing up for.
If you have any questions about what your property may be worth contact the professionals at Homeinc. We are here to help you with all your real estate needs. Call or text the team today 1-888-850-2636.