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Mortgage Rates Affect On The Housing Market

In today’s post we address mortgage rates, where they are headed and what this will mean for the real estate industry; particularly buyers, sellers and home prices.

Mortgage rates were expected to rise in 2022. At an all-time low in 2021, many forecasted that mortgage rates would rise gradually and end this year in the high three-percent range, according to a recent blog from Keeping Current Matters. However, we are only in April and mortgage rates are already steadily increasing; with recent numbers from the likes of Freddie Mac and Mortgage News Daily anywhere from the high four percent mark to just over five percent.

With this in mind, let’s turn to the real estate market. Common knowledge says when mortgage rates go up, home price growth should go down. However, we are still seeing home prices and multiple offer situations on the rise; especially in our local markets.

So, why are we not seeing home prices steadily decline with rising interest rates? First point, it’s not black and white. There are other factors in play beyond interest rates when looking at home value. In a recent blog by The Mortgage Reports’ Editor Paul Centopani, he writes, “To be clear, interest rates do not directly correlate with home prices, and vice versa. However, low rates stoke home buyer demand and higher demand leads to higher sales prices.”

Buyers also need to consider the lack of inventory which is keeping home prices inflated. Centopani’s post quotes Beeline Co-Founder and COO Jess Kennedy, who states:

“When you look at where the housing market is right now, you still see big gaps between available supply and demand. Until that demand is lowered due to rising rates, housing prices won’t go down.”

The Mortgage Reports blog also notes that the cost of renting versus owning a property also comes in to play. With inflation driving rent prices up, home ownership could still be the most affordable path. Why? Because even with rates in the high fours, they are still lower from a historical perspective.

After you’ve read these articles and with all this information in mind, if you are considering a move in 2022 you’ll want to stay informed of current market conditions. The best way to do this is to seek council from local lenders, underwriters and real estate professionals, who know and understand market conditions in your area.