When Rates Rise!
For many economic reasons, while others related to the pandemic-related so-called fatigue, home prices in most areas have increased at or near record amounts. Because of the prolonged period of artificially – created low-interest rates, mortgage rates have been at historic lows. For most home buyers, financing is essential to afford a purchase when a low rate causes cheap money; thus, the ability to afford more home-for-the-buck prices usually rises. It permits qualified buyers to qualify for more money/loans because the monthly mortgage ratio to overall income is artificially – reduced. How long will this trend continue, and will it become the new – normal, or will previous trends/ cycles return? How will pricing affect the immediate, intermediate, and longer – run? These are all factors to consider. With that in mind, this article will attempt to briefly consider, examine, review, and discuss some possibilities to view and understand.
1. Short-term: The Federal Reserve Bank planned to raise rates significantly in 2022. Of course, this was before the potential implications and ramifications of the Omicron variant. Many feel pressure to act quickly to take advantage of today’s low rates before they go up. Three increases will probably translate to at least a 0.75% higher rate. This will translate for most mortgages to hundreds of extra dollars per month. Something to consider, and pay attention to, is that this rate of increased home prices will probably not continue, especially at such a large degree. How longer one expects to keep a specific house is one issue to consider thoroughly and wisely before proceeding.
2. Intermediate – term: Although many believe to know the precise timing of any projected rate hike is uncertain. The Fed has changed and altered its strategies and approaches in the past. What the intermediate term may bring, including potential inflationary pressures, how long the economic conditions are, and unknown factors related to the pandemic, will determine what this phase may bring. In addition, the attitude and perceptions of buyers and their confidence broadly impact this real estate market.
3. Longer-term: In the long run, will things restore what we have seen so often in the past, which is alternating cycles between Sellers, Buyers, and Neutral Markets? The possibilities include a continued considerable escalation, a more – gradual but persistent – one. Some leveling, and will we see at least in certain areas some falling prices for a period?
Since no one has a Crystal Ball, it is wise to fully know and understand the possibilities, implications, and ramifications. Will you learn as much as possible to proceed wisely and well-prepared?