Economy & Mortgages
A Strange Disconnect - Why are Home Prices still Up when Rates are this High?
Follow the industry buzz, and you'll get a range of viewpoints -- from “The housing market is cooling off as rising interest rates and inflation weigh on affordability” (NAR), to “Home prices are expected to continue to rise in 2023, but at a slower pace…” (CoreLogic), to “The bidding wars are starting to cool off…” (Redfin).
While high mortgage rates would normally stomp all over home prices, that's not happening. The reason? The number of homes for sale in June 2023 was still 22.2% below the same month in 2021. It's still a seller's market. That kind of environment makes it a good bet that home prices should continue to rise, albeit slowly.
What drives the lack of inventory?
We’ve talked in previous issues about homeowners who are reluctant to move and let go of a 3% mortgage, and/or aging in place longer. Now, think back two years: The housing market sizzled in 2021 and 2022, with prices soaring.
Many homeowners rushed to sell their homes, cashing out much earlier than they might otherwise have. This front-loading of sales -- pulling forward sales that would normally have happened later – has exacerbated the ongoing lack of inventory, putting us in an even deeper hole.
What goes up...
The Fed, as everyone expected, raised its benchmark Fed Funds rate for the 11th time in this 16-month effort, by a widely expected 0.25% to a target range of 5.25% to 5.50%, the highest level in 22 years. Fed Chair Jerome Powell indicated that that higher borrowing costs are working to slow inflation, down from over 9% a year ago to about 3% now (the Fed’s target is 2%), and that the Fed believes we will avoid a recession.
On the flip side, credit card debt is soaring, which may well result in some economic reckoning ahead for many. For now, most experts hope that the Fed will let the cumulative effect of all these increases take hold and stand down for the foreseeable future.
What’s ahead for mortgage rates?
Assuming that the Fed is done (we'll see), mortgage rates may begin to trend downward towards year end -- good news for purchasers with rates in the low 7% range. The old adage “marry the house and date the rate” should apply, and we expect these buyers to refinance when that occurs.
So should you or your family members wait to buy? The long-term wealth-producing effect of homeownership is usually strongest when started early. We can help you to pounce when your ideal property hits the market, with a solid loan pre-approval that will maximize your competitiveness.
Contact us today to get the conversation started!
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Economy & Mortgages