Mortgage interest rates are up above 6%. At the beginning of the year, Fannie Mae predicted that the average 30-year fixed mortgage interest rate would climb from 3.1% to 3.3% by the end of 2022. Looks like this prediction was way off!!
A year ago, mortgage interest rates were 2.93%.
Sam Khater, Freddie Mac’s Chief Economist explained… “These higher rates are the result of a shift in expectations about inflation and the course of monetary policy. Higher mortgage rates will lead to moderation from the blistering pace of housing activity that we have experienced coming out of the pandemic,…”
How is this increase in interest rates expected to affect the housing market? Higher interest rates will result in less buyers being able to afford homes. This will most definitely reduce the bidding wars we have all gotten accustomed to in recent years. Applications for mortgages were down more than 15% last week compared to last year. The reduction of the buyer pool will stem the acceleration of home prices.
There is still low inventory but affordability challenges have gotten much higher due to the increased mortgage rates.
Buyer demand is starting to cool down. The rapid rise in housing prices seen in the last two years is expected to follow suit.
“The housing market is at a turning point. . . . We’re starting to see signs of a new direction, . . .”
How should we interpret this change? The home price deceleration does not suggest a crash. It is just a turning point in the market.
Let’s connect if you have any questions about our local market and what it means for you when you buy or sell this year.
