The housing market has been facing challenges lately, including a COVID-19 pandemic, increased property taxes, inflation, rising construction material costs, lack of available inventory, and affordability. Meanwhile, interest rates have continued to creep higher, putting pressure on the Fed to drive inflation down. In this article, we’ll look at how higher mortgage rates are impacting the housing market. In addition, we’ll discuss the effect of higher rents on the market.
Higher mortgage rates incentivize homebuyers to stay put
While higher mortgage rates discourage some potential homebuyers, they help the rest. Currently, the average mortgage payment on a newly listed home is $2,123, up nearly 25% from mid-March last year. Experts are now predicting that rates will continue to climb slowly this year, helping slow down demand and increase the supply of homes for sale. But it’s unclear whether that trend will continue or if it’s already begun.
The average 30-year fixed mortgage rate hit 5% last week, the highest level since 2011. Historically low rates were 2.65% in January 2021. On average, homebuyers’ monthly mortgage payment reached a record $2,288 in April. While the numbers are unreliable, they do show that the average 30-year fixed mortgage rate is putting pressure on home prices. Mortgage rates are a significant factor in determining whether a home is priced correctly.
Increased rents make it harder for the Fed to drive down inflation
The monetary policymaker hopes to keep prices from spiraling out of control by slowing down the housing market. But the rise in rents will put more pressure on current inflation measures. The Federal Reserve Bank of Dallas reported that a strong correlation exists between price increases and rents 18 months after the housing market hit its peak. This means that a housing slowdown is an almost inevitable part of the recovery.
In addition to the Federal Reserve’s target of 2% annual price increases, increased rents are making it harder for the housing market to become affordable. Currently, the cost of renting an apartment or house is rising faster than the cost of owning it. This situation is likely to continue with persistently low incomes and lack of supply of homes. According to the Redfin brokerage, rents are up 15.2% from last year. The housing market has also been impacted by labor constraints, work stoppages, and shortages of properties.
Shortage of new homes in West Coast markets
The lack of new homes on the market is a huge problem in many parts of the country. While mortgage interest rates have remained historically low over the past two years, the housing market has been suffering from a severe shortage. Homebuilders have been unable to find a suitable home for their family because there are not enough houses for sale. According to Nick Bailey, CEO of Re/Max, this has led to a shortage of available housing.
The average 30-year fixed mortgage rate was 5.55% on Wednesday. This is the highest rate since January and has contributed to stress in homebuyers. The supply chain has also been troubled. According to yoursite.com , about 60% of homes in April sold for higher than their asking price. With prices soaring, it’s hard to find a home that’s within your price range.