Today’s Interest Rates and what it means for buyers

Today’s interest rates and what it means for buyers

The Portage county housing market is slowly starting to change away from the heavy seller’s market we’ve seen over the last two years, and if you’re thinking of buying or selling a home, you may be wondering: is it still a good time to buy a home? Should I make a move this year? Maybe you were in the market, and gave up, but now is the time to start to reconsider. We’re here to help you answer those questions and see what it means for you, as a buyer, thanks to help from our favorite real estate experts. Let’s dive into it.  

Mortgage Rates Depends on Inflation

Most buyers are waiting and wondering what is going to happen with interest rates. No one can say for sure what’s going to happen, but what housing market experts know for sure is that the record-low mortgage rates during the pandemic were an outlier, not the norm.

This year, rates have climbed over 2% due to the Federal Reserve’s response to rising inflation. If inflation continues to rise, it’s likely that mortgage rates will also respond. Greg McBride, Chief Financial Analyst at Bankrate, explains it well: 

“Until inflation peaks, mortgage rates won’t either. Without improvement on the inflation front, we don’t know where the interest rate ceiling will be.” 

Whether you’re buying your first home or selling your current house to move into something that fits your family better, today’s mortgage rate is an important factor to consider. When rates rise, they impact affordability and your purchasing power. That’s why you want to partner with us and a great lender, so you have expert advice to help you make an informed decision about your best move.

The Supply of Homes for Sale Projected To Continue Increasing

This year, especially in the spring, the number of homes for sale has grown. There has been more homeowners listing their houses, but also because higher mortgage rates have slowed buyer demand. Moderating buyer demand slows down the pace of home sales, which helps inventory rise.

Experts say that growth will continue. Recently, updated their 2022 inventory forecast. In the latest release, they increased their projections for inventory gains dramatically, going from a 0.3% increase at the beginning of the year to a 15.0% jump by the end of 2022:

Expert Housing Market Forecasts for the Second Half of the Year | MyKCM

More homes to choose from is great news if you’re looking for more options during your home search – but that doesn’t mean there is a sudden huge jump in inventory. Housing supply is still low, so you’ll need to partner with great agents like Portage Traditions Group to stay on up to date on what’s available in your search area and move fast when you find the one. It’s not going to be easy to find a home, but it certainly won’t be as difficult as it has been over the past two years.

Home Price Forecasts Call for Ongoing Appreciation

Due to the difference between the number of homes for sale and the number of buyers able to buy a home with the low interest rates, the pandemic led to record-breaking increases in home prices. According to CoreLogic, homes appreciated by 15% in 2021, and they’ve continued to rise this year.

Even though the supply is increasing today, there are still more buyers than there are homes for sale, and that’s maintaining the upward pressure on home prices. This is why experts are not calling for prices to decline, rather they’re forecasting they’ll continue to climb, just at a more moderate pace this year. On average, homes are projected to appreciate by about 8.5% in 2022 (see graph below):

Expert Housing Market Forecasts for the Second Half of the Year | MyKCM

Selma Hepp, Deputy Chief Economist at CoreLogic, explains why the housing market will see deceleration, but not depreciation, in prices:

“The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.

For current homeowners looking to sell, know your home’s value isn’t projected to fall, but waiting to make your purchase does mean your next home could cost more as home prices and interest rates continue to appreciate. 

Rising interest rates and what it means for you

Mortgage rates are much higher today than they were at the beginning of the year, and that’s had a clear impact on the housing market. As a result, the market is seeing a shift back toward the range of pre-pandemic levels for buyer demand and home sales.

But this definitely isn’t a bad thing. The years prior to the pandemic were some of the best the housing market has seen. It was a balanced, healthy market, and interest rates were reasonable. That’s why, as the market undergoes this shift, it’s important to compare today not to the pandemic years which were outliers, but to the most recent normal years to show how the current housing market is still strong.

 The ShowingTime Showing Index tracks the traffic of home showings according to agents and brokers. It’s also a good indication of buyer demand over time. Here’s a look at their data going back to 2017:

A Window of Opportunity for Homebuyers | MyKCM

Here’s a breakdown of the story this data tells:

  • The 2017 through early 2020 numbers (shown in gray) give a good baseline of pre-pandemic demand. The steady up and down trends seen in each of these years show typical seasonality in the market.
  • The blue on the graph represents the pandemic years. The height of those blue bars indicates home showings skyrocketed during the pandemic.
  • The most recent data (shown in green), indicates buyer demand is moderating back toward more pre-pandemic levels.

This shows that buyer demand is coming down from levels seen over the past two years, and chaos in the real estate market is starting to relax because of higher mortgage rates. What that means for you is that buying your next home should be a lot less difficult than its been over the last few years because there is more inventory available.

As mortgage rates began to climb this year, other shifts have occurred, as well, including the slowing pace of home sales. Using data from the National Association of Realtors (NAR), here’s a look at existing home sales going all the way back to 2017. Much like the previous graph, a similar trend emerges (see graph below):

A Window of Opportunity for Homebuyers | MyKCM

Again, this data shows a shift in the market:

  • The pre-pandemic years (shown in gray) show a baseline of the number of existing home sales in more typical years.
  • The pandemic years (shown in blue) exceeded the level of sales seen in previous years. That’s largely because low mortgage rates during that time spurred buyer demand and home sales to new heights.
  • This year (shown in green), the market is feeling the impact of higher mortgage rates and that’s moderating buyer demand (and by extension home sales). That’s why the expectation for home sales this year is closer to what the market saw in 2018-2019.

Why Is All of This Good News for You?

Both of those factors have created opportunities for homeowners looking to move and for buyers looking to purchase a home. As demand moderates and the pace of home sales slows, housing inventory is able to grow – and that gives you more options for your home search.

So don’t let the headlines about the market cooling or moderating scare you. The housing market is still strong; it’s just easing off from the unsustainable frenzy it saw during the height of the pandemic – and that’s a good thing. It opens up new opportunities for you to find a home that meets your needs.

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