Mortgage Interest Rates and Home Affordability
Let’s talk about the elephant in the room – housing has gotten expensive! The housing market in 2022 has been the tale of two opposing stories – Value and Unaffordability. Home buyers saw housing affordability plumet due to rapidly rising mortgage interest rates and coupled with macro-economic inflationary spikes pushing the cost of goods up everywhere, exerting tremendous pressure on future homeowners leaving many wondering if they can afford to purchase a home.
Our current affordability dilemma was created by two factors, pricing and interest rates. Over the last 18 months, home prices have increased by double digits, with CoreLogic reporting a 10.1% year-over-year increase in prices in October 2022. Coupled with this rise in prices is the too obvious to ignore rise in mortgage interest rates which reached a pinnacle of almost 7.5%. Thankfully, mortgage interest rates have steadily retreated but are still solidly in the 6% range. Mortgage rates have decreased a quarter of a point over four consecutive weeks to reach 6.33% in early December.
The housing market cooldown is being driven by affordability. Even as the previously overheated market cools down, rates for a 30-year fixed mortgage is still higher than they have been in many years. The beginning of the year saw the 30-year fixed mortgage rate hovering at 3.25% and at year end, we are roughly double that.
The market cooldown is being led by declining buyer purchase power, faltering buyer confidence, and demand which normally is a leading indicator of lower prices but the market is not responding in this manner. Historically low levels of inventory are holding prices steady and in many segments of the market, home prices are once again rising.
I am seeing homes that are priced right, show well, and are in excellent condition still selling very quickly and in some cases with multiple offers. Buyers who are sitting on the sidelines waiting for rates and prices to drop back will be waiting for a very long time and they will likely miss their chance to buy a home.
While markets like this have its definite challenges, there is also an abundance of opportunity in the market. Builders who are sitting on inventory are freely willing to negotiate on price and in many cases offer incentives to buy down the interest rate to make a home purchase very realistic and affordable. In December, I was able to negotiate a significant price reduction on several new construction homes for clients. What was impossible in early 2022 is now very much an opportunity to buy a new home.
If purchasing a home is on your goal list for 2023, contact me for a no-obligation consultation to see how you can leverage the opportunities in the current real estate market for your gain!
