How rising interest rates will likely affect home prices in our market.
Will home prices drop now that interest rates are climbing? I’m getting asked this question daily, and it seems like every media outlet is talking about it too. I wanted to address this question today and explain a few important things so that you can have more confidence in what’ll happen to your home’s value over the next year:
1. Mortgage rates will continue to rise. Mortgages are more expensive, and rates aren’t expected to drop soon. That means some buyers will be priced out of the market, and others won’t be able to find affordable options in the areas they were interested in. This doesn’t mean that there isn’t any buyer demand, and it doesn’t mean that pricing will be affected.
2. Supply is still low. The concept of supply and demand is basic economics. The supply of homes is still low, and there are two reasons. First, most people have decided not to move. As rates rise, fewer people will want to move and get a higher mortgage. The second reason is that new construction starts have been at an all-time low over the last decade. Not enough products are being built to match the demand in the market.
3. Rental rates are high. People often forget that buyers will move into the rental market if there’s not enough supply. Because housing demand is so high, the rental market has gone through the roof too. It can be difficult to find a home to rent in some areas!
We have more people looking for housing than ever before. Our population is at its peak, and people are coming into the country from everywhere, which is causing tons of demands in all kinds of markets. With the current market’s high demand and low supply, rising mortgage rates won’t cause the market to drop like it did back in 2007.
Home price appreciation will likely continue, but it will be slow. It won’t be that rapid increase that we’ve seen these past few years. Instead, it’ll be a normal appreciation of around 3% to 4%. You probably won’t see home prices drop in most markets in our area, but you can’t paint with a broad brush when you talk about real estate. You have to understand that certain pockets of our county may see home prices drop.
If you’re worried about your home price dropping, don’t be. You’ve likely seen huge price increases over the last few years, and that equity is here to stay. There’s a new floor to home prices.
If you’re looking to buy a home, understand that things will start to calm down. Inventory will begin to trickle up. It might not be enough to balance out the market, but you’ll have more options, and buying will be less chaotic.
If you have any questions about these changes in our market or would like to discuss them in more detail, feel free to call or email me. I’d love to hear from you.