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Rising Interest Rates – So What Happens Next?

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New York – Homebuyers rushed to the home market in the first quarter of this year as they sought to beat the expected mortgage rate hike, making it one of the most competitive quarters since the outbreak of the pandemic. became. However, experts say there are signs of better bargaining terms for homebuyers in the coming months.

According to the S & P Core Logic Case-Shiller Home Price Index, which developed the series almost 30 years ago, home prices in March rose 21% from a year ago, a record high for March year-on-year.

About 7 out of 10 units were sold above the asking price.

Selma Hepp, Deputy Chief Economist at CoreLogic, said:

The median price of existing single-family homes in April was $ 397,600, up 14.8% from April 2021.

However, experts say there are signs that the Federal Reserve’s rate hikes to curb inflation are beginning to affect the housing market. And they expect a slowdown in US home price growth and better market conditions for those trying to buy homes.

According to the National Association of Real Estate Agents, median existing home sales prices rose 14.8% year-on-year to $ 391,200 in April. It increased by 19% from April 2020 to April 2021.

The Federal Reserve Board began raising interest rates in March to curb inflation for the first time since it reduced inflation to zero in March 2020. The 30-year fixed mortgage rate rose from 3.7% in early March to 5.1% in the week of May 26th.

Fed rate hike

A month or two after the rate hike, the impact on the housing market was already apparent. For example, according to Redfin, the share of lists with price cuts reached a two-and-a-half-year high in May.

In the four weeks leading up to May 22, about one-fifth of sellers, or 19% of the list, dropped from 13% last month and 9.8% a year ago.

Tour activity from the first week of January to May 22 was 29 percentage points behind the same period last year.

“More and more buyers are withdrawing, including fewer people looking for a home, fewer people visiting homes, and mortgage applications approved for home purchases. Almost all of these key indicators are buying. Responds to high interest rates, “says Taylormer, Deputy Chief Economist at Redfin.

In 2018, new listings increased when the market began to cool as a result of rising interest rates, home sales took longer and prices had to be lowered to meet buyers’ budgets, Ma said. increase.

“I saw more sellers rushing to put their homes up for sale,” he says.

However, unlike 2018, fewer homes are currently on the market.

“They are on par with a year ago, but we don’t really see supply growth hitting the market,” he says.

Shortage of moving buyers

One of the big reasons is homeowners with low mortgage rates. Approximately half (51%) of US homeowners with mortgages have a mortgage rate of less than 4%, or 5% today, according to a Redfin analysis of Federal Home Finance Agency data for the fourth quarter of 2021. Is well below. The report targets approximately 80 million owners. -American home. About two-thirds (62%) of them have unpaid mortgages.

“This discourages moving buyers who may decide to keep their current mortgage because interest rates are so low,” says Ma.

Mr. Ma added that the rate of increase in interest rates was not as sharp or noticeable as it is now in 2018 (.5% vs. 8%).

Home prices continued to rise in March, but there are signs that the housing market is at or near an inflection, says Abbey Omodumbi, senior economist at PNC.

The number of housing starts decreased in March and April, and the number of existing homes, which account for about 90% of total housing sales, decreased during the same period, reaching the lowest level since June 2020.

According to the National Association of Real Estate Agents, single-family home sales fell to 4.99 million in April, down 2.5% from 5.12 million in March, and down 4.8% from a year ago.

Homebuilder sentiment in May, measured by the National Association of Home Builders, was the lowest since June 2020. Long-term interest rates will probably continue to rise as the Federal Reserve focuses on slowing demand and curbing inflation, and house price growth will slow in the next two years, Omodumbi said.

What does this all mean for those trying to enter the housing market?

“Balanced housing market”

The Fed’s actions to curb inflation appear to normalize markets and cool demand, said Steve Reich, Chief Operating Officer of the Finance of America Mortgage.

According to the Mortgage Banking Association, mortgage applications for the week ending May 27 were down 2.3% from a week ago and 14% from the same week a year ago.

“I think price increases are likely to be more gradual during the summer and throughout the year,” he says. “Inventory has also increased since it hit a low in January this year, which may help further mitigate price increases in some markets.”

That’s good news for buyers, Ma says.

“A kind of market rebalancing towards a more balanced market, where buyers have a little more power and sellers have the power to lower prices a little.”

Copyright 2022, USATODAY.com, USA TODAY

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