Maybe you've heard but mortgage rates have been steadily climbing, hitting 5% recently, the first time since 2011. In order to combat intense inflation, the Fed increased rates which have in turn caused mortgage rates to increase.
So what does this mean for buyers and the market in general?
There are many different view points on what happens next. Some see this as a bubble about to pop (though this is a rare argument), some see it as a natural and necessary downturn, an still others see little change happening long term.
Fortune on the housing market
Wharton on the effect of rising rates (and a great point about how lenders will correct the low-interest-rate refinancing with some creative products)
Fox Business on a possible bubble (though it should be noted a leveling or slight downturn is different than the scary-term "bubble")
Zillow on returning to "normal"
Finally, some good advice from Yahoo on how to perceive home buying right now (the basics - if you WANT to move, do it. If you don't, don't spin your wheels just because everyone else is)
---
Locally, my personal opinion is that we will see some cooling off from 2021-level craziness. And thats a good thing. Sure, if you are trying to sell your home, 2021 would have been a great time. But if you also needed to buy, like most people might, the trade off could have been a difficult, time-consuming process. And many buyers, even those who freed up their home equity, had to settle a bit on what their next home looked like. The cooling off of the market, even a little, will mean less buyers, less intense bidding wars, and thus potentially some real-estate-laden buyers who can secure homes and open up their current real estate to the market, freeing up some inventory. (And honestly, this is the buyer we hope we see more of to correct the situation!)
But this Spring might still be a difficult one. Plenty of buyers from 2021 and those who intended to make 2022 their buying year, will be so set on purchasing that the 5% rate jump may not make much of a difference. For mid-range buyers and up with an interest in moving, 5% will make them less eager to over pay for a less than ideal product, but hot houses are likely to still be hot and there will be plenty of wealthy buyers who out bid one another. Inventory is still limited and buyers are still competing against one another.
Meanwhile, poor entry-level buyers may be completely put out of the market. Rising interest rates may literally prevent them from securing a mortgage at their anticipated price range. And if the price range above them cuts out additional buyers who have to drop down in range, its unlikely they will see a reprieve in affordability for a while. Conversely, if enough entry level buyers drop out of the game, the remaining ones may have a better chance of securing housing, especially if the price range above stays relatively secure as buyers take a step back from settling. If there is even a 25% drop in mortgage applications though, some of those entry level homes that had 20 offers, will obviously still see over 10 interested parties.
Real estate is very local. What is happening in rural Minnesota, vacation towns or even in major cities elsewhere in the country, might not be happening here. In greater Philadelphia, its been a sellers market with multiple offers well before the pandemic. With still low inventory and buyers with higher buying power, bidding wars are not going to fade away quickly. Further, it will be interesting to see if some of the learned-strategies for winning offers in 2020 and 2021 will stick around. Will buyers still waive inspections and agree to cover appraisal gaps in the near future? Like many hot markets well before the pandemic did, will greater Philadelphia see those strategies become the norm?
Only time will tell!
Nice Post
ReplyDeleteCheck Me Out
realtors in milton