Mortgage Rates Rise, Home Prices Fall — Is it Time to Buy?

Is It Time To Buy?

The recent rise in interest rates has been deemed necessary by the federal government to reduce inflation, and as a result, home buying has cooled. According to a report from CBS News, home prices have begun to fall. Some home prices projected to go down as much as 20% next year, as the housing market “normalizes.”

Where some see a major correction in home prices coming, others believe the projected fall will be moderate, no more than 5% to 10%.

Is now the time to buy? Here are a few things you need to consider before making your next move.

What’s Going on With Mortgage Rates?

As you’ve probably heard a few times this year, mortgage rates have been skyrocketing — they are much higher compared to what they were at the beginning of the year.

When 2022 began, most people were looking at rates in the 3% range, but at the time of writing this article, 30-year fixed rate averages nearing 7.5%.

Most financial experts are expecting the Federal Reserve to continue raising interest rates into next year. As a guideline, you can expect every 2% rise in interest rates to add about $115 to your monthly payment for every $100,000 of a 30-year home loan. So, rate increases in 2022 have added hundreds of dollars to the typical mortgage payment.

Why is the government contributing to such increases? The logic behind higher interest rates is that it’s a mechanism to fight inflation. If people are spending more money on their mortgages, then they’ll have less to spend on goods and services.

If there’s less to spend on goods and services, then demand for them goes down, along with their prices. This also eases pressure on overheated supply chains.

Even though the near-future projections for 2023 appear to be more of the same (more inflation and increasing interest rates) the largest contributor to it (COVID-related supply chain issues) may level off, and we’ll hopefully see a return to normalcy.

What’s the Effect of the Situation on Home Sales?

Since mortgage rates are rising, homeowners are clinging to their current homes because selling now would mean they will get locked into a new mortgage that’s even more expensive — almost half of existing mortgages are under 3.5%, and it’s hard to find any rate under 6% right now.

Even sellers who were looking to downsize and move to something a little cheaper will most likely end up paying more because of this.

This refusal to sell is creating a dip in the total number of houses that are on the market, which is a factor that could slow down the price drops that we’ve seen across the housing market since the same amount of people will be competing for fewer homes.

It’s a Complex Situation with Many Competing Pressures

During the pandemic, we saw home prices surge quite a bit. Due to an incredibly high number of people switching to remote work, remote learning, and just more time spent at home in general, people started searching for bigger, nicer spaces.

This created intense competition among home buyers (not to mention near-zero interest rates), and we saw a boom in housing prices that was very clearly not going to last forever.

Fast forward two years and those conditions have cooled, near-zero interest rates are a thing of the past, and housing prices have seen a sharp decline. July to August this year saw an average price drop of 1.1% in just one month, the biggest drop since 2012.

For some people, these two conflicting trends (price dips and interest spikes) are canceling each other out, especially for first-time buyers.

In some sense, declining prices are evidence that the rate hikes are doing their job. It’s cooled the COVID housing boom and brought prices to ranges that are more in line with what people can afford.

Does This Mean You Can Still Buy a Home?

Yes! Every circumstance is different, so it’s impossible to provide one-size-fits-all advice for buying a home. However, if you can afford to buy right now, the only downside may be getting a high mortgage rate — something that can potentially be eased by saving for a higher down payment or through refinancing down the road.

Look for bargains, Home prices are falling, and there may be opportunities to get the home of your dreams for $.90 on the dollar!

If mortgage rates have you wary of buying right now, remember that it is important to do the math carefully and stay within your means. But ultimately, don’t let rising interest rates stand between you and the perfect place to make your home. Historically, interest rates were as high as 20% in 1980 and above 7% as recently as 2002.

Lastly, consider that the downward pressure on housing prices may not last. So, instead of waiting, if you can find a bargain, lock in your savings now.

Homebuyer Guide

Even if this is your second home buying experience, you’ll find solid information in our “First Time Homebuyer Guide.” This 40+ page guide delivers a range of critical information from Understanding the Mortgage Process and Types of Loans to Avoiding Discrimination and which states have no LGBTDQ+ Housing Protections.

Find the Help You Need

The LGBTQ+ Real Estate Alliance, a 501(c)6 organization, was launched in June 2020 by leading members of the real estate industry.  The mission of the Alliance is to Advocate, Elevate, and Celebrate. The Alliance advocates for fair housing for all and promotes LGBTQ+ homeownership.

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