With the prospect of higher mortgage rates in the coming year, a number of predictable things are about to occur and most real estate experts agree on most of them.
For example, “Most buyers base their price range on how much they can afford every month,” says Holden Lewis, home and mortgage expert at Nerdwallet, “and mortgage payments go up for a given loan size as rates increase.”
Thus, says Lewis, homebuyers will have to adjust their expectations, and begin shopping in lower price ranges. Higher mortgage rates could mean less competition for higher priced homes, and lots more competition for lower-priced homes, he added.
In fact, some buyers will be pushed out of the market entirely.
“Aside from a few days in 2018, we haven’t seen rates this high persistently since around 2011,” Wharton real estate professor Benjamin Keys said in a recent interview. “Mortgage rates are the real focus among a lot of people right now, and trying to understand what impact [that is] going to have on housing markets.”
The historically low mortgage rates of the last few years may mean that buyers stop looking as hard as they have been, because they are “locked in” to the low rates they received in the last few years.
Prospective homebuyers, on the other hand, will now face higher interest rates, each that are already priced historically high, especially in Southern California.
Lawrence Yun, chief economist at the National Association of Realtors (NAR), also noted recently that, “Many buyers will be forced out of the market because of the hit to affordability from rising interest rates. The 15% home price increase and interest rates now up to 5% has boosted the monthly mortgage payment obligation.”
With prices continuing to increase, in fact, the slightest change upward in mortgage rates, can have apaninful effect on home buyers.
According to the Black Knight HPI, home prices rose 1.84% in February – nearly four times the 25-year average for the month – and the 14th month of the pandemic to see greater than 1% monthly growth. The average home has now increased in value by more than 34% since February 2020, said real estate data firm, Black Knight, with appreciation continuing to reaccelerate after a brief slowdown last fall.
In fact, each of the 100 largest U.S. markets experienced double-digit annual home price growth in February 2022, with three-quarters of those markets seeing continued acceleration of appreciation, the data firm reported in early April.
At the same time, Fortune reported just this week that, “Every major real estate firm with a publicly available forecast, including CoreLogic and Fannie Mae, predicts that home prices will go even higher over the coming year, reported this week.
But it won’t last forever, some experts are saying, reassuringly. According to Zillow, “annual home value growth will continue to accelerate through the spring, peaking at 22% in May before gradually slowing to 17.8% by February 2023.”
As Nicole Bachaud, Zillow economist, noted, “We’ll see price growth slow later this year due to pullback in demand as enough buyers hit an affordability ceiling between rising prices and mortgage rates.”
Redfin Chief Economist Daryl Fairweather said this week, “The sharp increase in mortgage rates is pushing more homebuyers out of the market, but it also appears to be discouraging some homeowners from selling. With demand and supply both slipping, the market isn’t likely to flip from a seller’s market to a buyer’s market anytime soon.”
Whatever the signs show or don’t show, according to Redfin, the market is still moving swiftly everywhere. Forty-five percent of homes that went under contract found a buyer within one week, and the average home that sold went for 2.4% above its asking price.
“The sharp increase in mortgage rates is pushing more homebuyers out of the market, but it also appears to be discouraging some homeowners from selling. With demand and supply both slipping, the market isn’t likely to flip from a seller’s market to a buyer’s market anytime soon,” Fairweather said.
