Why Aren’t Higher Mortgage Rates Creating A Buyers’ Market?
Mortgage rates have more than doubled since COVID, from 2.6% to 5.6%. But despite this surge, home prices have continued to increase. In some cases, the rise in prices has been even steeper than before.
So, why aren’t rising interest rates slowing down the real estate market? In other words, why is it still a seller’s market in today’s high-interest climate?
For starters, there’s still more demand than there is available housing supply, with Zillow forecasting a 10.8% decrease in home inventory in 2022.
This supply-and-demand imbalance has been a long-standing trend in many markets since the pandemic, and it’s not showing any signs of abating.
Second, to understand why rising interest rates haven’t had a significant impact from a seller’s standpoint, we must also consider today’s overwhelming consumer sentiment toward the real estate market.
A recent study by Fannie Mae reported that consumer confidence in the market has reached its lowest point since the onset of COVID, with only 17% of homeowners likely to sell in the next six months due to pandemic-related concerns.
This means that a relatively small number of people are considering selling their homes at a time when there are already more buyers in the market than there are listings. So even if rates continue to rise, we’re unlikely to see a decrease in demand from buyers. This, in turn, keeps prices high in an already imbalanced sellers’ market.
Lastly, data complied by Realtor.com in early August 2022 showed that the median listing price for homes in the U.S. increased by 15.5% over last year, rising to $449,000. It also reported that the number of new listings was down 8% from July 2021.
With such a limited number of homes available for purchase and buyers eagerly snapping up any new listings that come on the market, it’s no wonder that home prices continue to surge upward, even in the face of higher interest rates.
So while it’s true that rates are on the rise, there are still numerous factors keeping the real estate market in sellers’ favor. Unless we see a significant increase in housing inventory or a decrease in buyer demand, it’s unlikely that we’ll see any real change in the market dynamic anytime soon.
All that said, homeownership is still a great long-term investment and hedge against inflation, as we pointed out in a recent article.
So if you’re thinking of selling or buying, don’t let concerns about the market dissuade you — just be sure to work with an experienced agent who can help you navigate these ever-changing waters.
For more information about the real estate market, or to learn about the buying or selling process, reach out to an Elegran advisor today.
