Judith Sutton ABR CRS IDS PMN ASP IAHSP SRES GREEN
Judy@JudithSutton.com 908 803-0472
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How Mortgage Rates Influence Home Buying
The role of mortgage rates in this whole saga cannot be overstated. Low mortgage rates are the gasoline that fuels the homebuying fire—that was true 30 years ago, it was true 10 years ago and it remains true today.
When rates dip, the homebuying public takes notice. A modest reduction will evoke serious interest from homebuyers; an outright dip sparks the kind of frenzy we saw in 2020 and 2021.
When the Fed raised interest rates to battle inflation starting in 2022, mortgage rates started rising as well. Currently, they've been hovering near 7% for weeks. This has led to an affordability crisis when homebuyers can't afford the monthly payments needed to realize their homeownership dreams.
Lack of inventory driving home prices
After interest rates (which fuel consumer demand), the biggest factor driving an increase in home sale prices is the lack of inventory. In a hot housing market inventory shortages invariably drive up home prices, resulting in a situation where supply in no way meets demand.
Exuberance yes, speculation no
The current housing market has experienced a dramatic rise in sales prices over the past few years. According to a recent report, the median home sale price has risen to $371,200—that’s a momentous $50,000 increase from where prices stood about two years ago but at a similar point to where they were the previous year.
Exuberance
Good exuberance can be seen as taking advantage of opportunistic conditions and purchasing homes because value, need, and desire merge in a satisfying way. The past few years have certainly seen an emergence of unique conditions that have driven homebuying demand. Buyers are well-financed and are hungry to own. They aren’t here to flip or turn a quick profit; they’re excited to invest both in value and in a way of life. They’re looking for an improved living space— a place where they can both work and live—and in many markets such as ours, they are willing to pay for it.
Speculation
Speculative sentiment—is not the current cause of inflated prices. People are buying because they see it as a great investment over the long haul. This isn’t about underfinanced individuals recklessly purchasing homes they can barely afford. This is a different market. People have the money to buy.
Property owners possess record levels of equity in today's housing market. In addition, many lessons were learned from The Great Recession. Tighter standards have been introduced for home purchases in terms of debt-to-income ratio (DTI), employment, and credit scores. Now people are better prepared.
While it’s unlikely every last speculator has been weeded out from the marketplace, the preconditions for a housing bubble just don’t seem to be there on a mass scale. Across the real estate index, buyers, sellers, and mortgage providers are more savvy, more prepared—and more thorough. (As they should be!)
Need additional help deciding where to start? Call me. I can guide your choice!
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Judy@JudithSutton.com
COLDWELL BANKER...GUIDING PEOPLE HOME SINCE 1906
908 803-0472
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