The FED has told us that after this last interest rate increase, there will be many more to come. For example, the 2021 national average ended with a 30-year fixed interest rate of 3.19%. The latest 30-year fixed interest rate is 5.06%. That’s a 58% increase in rates in four months, with much more to come.
According to a report by Redfin, mortgage applications are already down more than 6%. That suggests sellers may have to be more realistic when setting their asking prices, which may be a shock considering market conditions over the past few years. However, that seems to be the trend, as there are growing reports of listings reducing their asking prices. Indeed, Redfin said listing price reductions have grown fastest since 2015.
“The sharp increase in mortgage rates is pushing more home buyers out of the market, but it also discourages some homeowners from selling, said Redfin Chief Economist Daryl Fairweather. “With demand and supply both slipping, the market isn’t likely to flip from a seller’s market to a buyer’s market any time soon.”
The National Association of Realtors cited the rising mortgage rates as the main reason it is forecasting a 10% drop in home sales in 2022. The NAR says rising rates are pricing out more and more would-be buyers. However, it still expects home prices to increase by 5% in 2022.
For first-time home buyers, the cost of buying the same home this year compared to just one year ago has jumped by 40% – a combined impact of higher home prices and mortgage rates.
“There will be an inevitable slowdown in home sales,” Lawrence Yun, the NAR’s chief economist, recently said. “Keep an eye on days-on-market and a decrease in multiple offers. Home sellers should not expect big, easy profit gains.”
The housing market remains a red hot one even as signs of cooling make their presence felt. Homes sell faster than ever before, and price escalations and bidding wars are still commonplace, Redfin reported. For example, in the last month, Redfin said that 45% of homes that went under contract did so within one week, with the average home selling for 2.4% above its listing price.
I subscribe to Doug Casey and the International Man investment newsletter. A recent letter discussed interest rats:
International Man: Interest rates rise and fall through decades-long cycles. Where are we in the cycle right now, and what happens next?
Doug Casey: This is an easy question to answer. Interest rates last peaked in the early 1980s.
Back in the early eighties, at one point, the US government was paying 20% on T-Bills. Interest rates have been going down for the last 40 years. It’s dangerous to pick tops or bottoms in the market, but my guess is that interest rates reached their ultimate bottom in the last year.
Now, because there’s so much debt in the world, and money is being printed so fast, interest rates are headed up to and beyond the levels they were in the early 1980s. And it will take a lot less than 40 years this time around.
That will have real consequences—bad ones—for people who own homes, finance cars, save money, and have money in the stock market.
As investors, we are in business to make a modest profit on any deal. However, we can help homeowners out of any situation, no matter what! There are no fees, upfront costs, commissions, or anything else. Instead, we offer the simple truth about your home and how we can help you sell it fast.
Give us a ring. We would love to help you understand the process and answer all of your questions. You can reach us at 402 999.0577.