Rising interest rates cool the boiling real estate market
DETROIT (WXYZ) — Housing prices have risen more than 20% nationwide since the pandemic began. To combat the effervescence of the real estate market, the Federal Reserve raised interest rates.
The 0.5% interest rate hike is the biggest in more than 2 decades, and more hikes are expected in the coming months. It’s an effort to slow inflation, but these rate hikes make big purchases, like buying a car or a house, more expensive.
The National Association of Realtors expects home sales to fall 9% in 2022 from 2021 due to rising interest rates.
Even if that happens, average prices are expected to be about 5% higher than they were in 2019, before the pandemic. This is mainly because there is still not enough housing in the whole country.
Housing experts at Rocket Mortgage say rising interest rates could make the inventory problem worse and prevent people from putting their homes up for sale.
Existing owners are likely locked in for a lower interest rate, so many may try to wait to sell until interest rates come back down, but that will likely be next year at the earliest.
The average 30-year fixed mortgage rate is now 5.37%, up more than 2 percentage points since the start of the year, according to the Mortgage Bankers Association.
Buyers of an average existing home that sold for $375,000 will pay $440 more every month now than they would have in December, and that’s with 20% down payment and a flat rate for a term of 30 years.
Economists say the Fed will likely make another half-point rate hike at its next meeting in June and possibly again in July. They predict that by the end of this year, interest rates could be up 3% from their current level.