Home News Higher interest rates, inflation could lower home prices in SLO County

Higher interest rates, inflation could lower home prices in SLO County

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June 23, 2022

Ziemowit Bednarek

Opinions from the Cal Poly San Luis Obispo Finance Area

The Federal Reserve’s actions to raise interest rates have made home ownership even more out of reach for many Americans, but their steadily rising costs could eventually become buyers. Said the chairman of the financial area of ​​Carpoli.

Ziemowit Bednarek, an associate professor of finance at California State University, said: “In that sense, there is definitely hope for future buyers.”

Hope is not something that non-wealthy homebuyers have experienced in recent years.

Median existing home prices in the United States reached a record high of $ 407,600, according to Reuters. This is 14 percent higher than last year.

The situation in California is getting worse. Oscar Way, Deputy Chief Economist at the California Real Estate Association, told KSBY-TV that only one in five Golden State households can buy a median home. This is a significant drop from one in three households just two years ago.

During the pandemic, the 3% mortgage rate was attractive to buyers, but the lack of available homes pushed the seller’s market up.

But now that interest rates have risen, so have mortgage rates. This means that already expensive homes will cost more to raise money.

“In an era of restrictive or high interest rate policies, loans are more expensive for both businesses and individuals,” Bednarek said.

The Fed has tripled interest rates since March, hoping to mitigate record inflation while preventing a recession. As a result, mortgage rates are higher, doubling to 6%.

According to the Washington Post, the impact is obvious to consumers. According to the Washington Post, monthly mortgages for $ 250,000 homes are $ 356 more and $ 750,000 home mortgages are $ 1,067 higher.

But again, there is a little hope. After all, people are more likely to stop buying a home.

“Expensive loans will weaken consumer demand, at least in theory, lower demand in the housing market and thus lower prices,” Bednarek said.

However, there are some caveats. “Since the COVID 2019 pandemic began in March 2020, the economy has undergone many structural changes, one of which is working from home,” says Bednarek. “People have found that by working online, they can move to cheaper places and continue working. Of course, this has caused prices in the originally cheap market to skyrocket.”

Rising interest rates can also affect the construction of new homes that were already stagnant during the pandemic and contribute to higher prices.

“Companies are less likely to expand and hire, which only deepens the shortage of new homes,” he said. “In fact, this part could counteract the impact of high credit on the housing market itself and maintain existing home prices.”

Recent developments are driving a mortgage interest rate strategy. Buyers who fix on a 15-year or 30-year fixed-rate mortgage are protected from future interest rate rises. However, more unpredictable floating rate mortgages may make sense.

“If you don’t plan to keep your home for a long time, or if you don’t expect interest rates to continue to rise, it may make more sense to use ARM,” Bednarek said. “But in our current market conditions, the Fed appears ready to continue raising interest rates in the foreseeable future.”

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