Tuesday, June 21, 2022 – by Derek English, president, Greater Chattanooga Realtors
No matter your occupation, we’ve all noticed rising prices in items that are part of our everyday life. Whether it’s fuel, clothing, or groceries, inflation has been taking a steadily increasing amount from our pockets. It’s no different for real estate. In case you missed it, this past week’s announcement by the Federal Reserve set a big increase in interest rates and means several more rounds of rate hikes are on the way in upcoming months.
Dr. Lawrence Yun, chief economist for the National Association of Realtors, shared valuable insight on what’s happening and what to expect, “So far, the short-term fed funds rate that the Fed directly controls has risen by 175 basis points. But the 30-year fixed rate mortgage has risen even more – by nearly 300 basis points. On the same $300,000 mortgage, the monthly payment has risen from $1265 in December to $1800 today. That’s painful and, consequently, will shrink the buyer pool.”
Dr. Yun continues, “Home sales have recently been trending down towards 2019 figures. Sales could fall even further with some inventory sitting on the market for more than a month like in the pre-pandemic days. Pricing a listed home properly will, therefore, be the key to attracting buyers. In the meantime, rental demand will strengthen along with rents. Only when consumer price inflation tops out and starts to fall will mortgage rates stabilize or even decline a bit. That is why providing additional oil supplies will be critical in containing consumer prices and interest rates.”
These higher interest rates are aimed to combat inflation and will definitely throw a wet blanket on the real estate industry until they come back down again. And for those who don’t think these rates will have much of an effect, consider that higher interest rates equate to less buying power. Compared to only a year ago, if you were looking to purchase a $400,000 home, with the increased rates, your buying power decreases to the $300,000 range. Buyers may have to look at smaller homes with less amenities to stay in their comfortable budget range.
So yes, the housing market continues to shift everywhere which is why it is so crucial to utilize the expertise of a realtor. Whether you’re buying or selling, finding the right window to purchase or a sell a home is essential. Always trust your real estate needs to a realtor. That’s Who We R.