Mortgage rates have risen quickly since the beginning of January 2022. They went from the low 3% range to low 5’s in just over three months, so what does that mean for home prices?
There are some potential home buyers hoping that as rates increase, home prices will decrease. However, that isn’t really true. There are several reasons for this, mortgage rates are only a small piece of the puzzle. Other factors are things like jobs, what the economy is doing, the pandemic and what is happening in Russia and Ukraine.
Other big factors in the puzzle are inventory. There is a still a strong demand for homes and inventory is low. In the last decade home building slowed and right now we need to build about 2 million homes to catch up with the demand. Millennials are moving towards 40 now and many want a home as they are starting families, or they need a bigger home. There are also people that are now working from home and moving to different areas, especially those that were in more expensive areas.
Home prices are expected to increase this year. This is a chart showing expected home price increases from Pulsenomics with the latest Home Price Expectation Survey
- 2022: 9%
- 2023: 4.74%
- 2024: 3.67%
- 2025: 3.41%
- 2026: 3.57%
The biggest question is whether some buyers may be pushed out of the market due to rising interest rates. The increase definitely affects mortgage payments and how much buyers can afford. This may reduce some competition for some homes and make it easier for some buyers to find a home. It may make it harder for those buying lower priced properties to find a home though. The reality is some buyers may have been looking in the $400,000 range and now may have to move down closer to $350,000.
Some are worried about rising interest rates and whether it makes sense to buy now. We do not see home prices dropping and so if you buy now, you start gaining equity. The sooner you do buy, the better chance that you will see an increase in value and therefore more equity in your home in the future. Remember if interest rates do drop in the future, you can always look into refinancing your loan to a lower rate.
Leslie Vanderwerf, NMLS ID#335509, Cross Country Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website