Spring Selling Trouble

In a recent report from our friends over at Realtor.com, it was announced Tuesday that the US Federal Reserve will likely hike interest rates again. Previously, the Fed’s decision to keep interest rates low had unintended consequences, causing housing prices to soar and putting pressure on homebuyers. The article states that the current housing market is already highly competitive, with low inventory and high demand, and the Fed’s actions have made it even more difficult for buyers to afford homes.

The article cites a recent report by the National Association of Realtors which shows that home prices rose by nearly 15% in the fourth quarter of 2021 compared to the previous year, with many homes selling for above asking price. The Fed’s decision to keep interest rates low has led to an increase in demand for mortgages, which has further fueled the rise in housing prices.

Of course, the Federal Reserve’s interest rates are closely tied to traditional 30-year mortgage rates. A raise by the Fed almost certainly spells an increase in mortgage interest rates. According to Mortgage News Daily, rates hit 7.03% Tuesday making it 50% more expensive for buyers to buy a home today than it was this time last year. 

Extra Costs

Even just one base point raise in rates spells extra monthly costs. Assuming a buyer puts 20% down on a median priced home, the difference between 6.03% and 7.03% means $219 extra dollars per month and nearly $80,000 more over the life of the loan. 

What the Realtor.com study goes on to show is that the Fed’s actions may ultimately harm the housing market, as homebuyers are forced to take on more debt to afford homes, which could lead to defaults and foreclosures down the line. Additionally, the article notes that rising housing prices may make it more difficult for homeowners to sell their homes in the future, as potential buyers may be priced out of the market.

While the Spring selling market is sure to be frustrating, it’s not a nail in the coffin. The good news is that Realtor.com chief economist Danielle Hale doesn’t anticipate it getting much worse. She doesn’t think rates till top 8% and that the market will recover, albeit slowly.