The impact of interest rate hikes on the housing market | Tonkon Torp LLP

On May 4, after a two-day policy meeting, US Federal Reserve Chairman Jerome Powell announced the first of what are expected to be several interest rate increases in 2022. The first, a 50-point increase base, is the highest. hike in 22 years and this is just the beginning. During his remarks, Chairman Powell indicated that more rate hikes are on the horizon.

While the move is aimed at reducing inflation, the ripple effects in the residential housing market are sure to trip up potential buyers. The increase comes during an already turbulent time for residential real estate, with prices rising steadily in recent years, especially in metropolitan areas, such as Portland.

According to red fin, “In March 2022, home prices in Portland were up 6.8% from a year ago, selling at a median price of $550,000.” Add higher interest rates into the mix and mortgages will be even harder to get. This is a serious issue, as housing affordability looms large for Portlanders and others in expensive metropolitan markets.

Does this mean a real estate crash is imminent? It’s always possible, but far from guaranteed. The housing market crisis of 2008 was largely the result of problems with subprime lending, which ultimately led to heavy foreclosures and a drop in demand. The current situation is different, as demand is the main driver of rising house prices. However, demand will decrease as accessibility issues increase.

In fact, before the Fed’s recent actions, the housing market was already showing signs of slowing across the country. As the Washington Post said, “The combination of limited homes for sale, continued double-digit price increases and sharply rising mortgage rates are weighing on US home sales. New home sales were down 12.6% in March from March 2021, according to the Census Bureau.

the National Association of Realtors (NAR) also noted a slowdown: “Existing home sales fell for the second consecutive month in March to a seasonally adjusted annual rate of 5.77 million. Sales were down 2.7% from the previous month and 4.5% from a year ago… The housing market is starting to feel the impact of the sharp rise in mortgage rates and the rise inflation which weighs on purchasing power. »

Chairman Powell’s remarks, particularly his comments on the anticipation of several future interest rate increases, have thrown a wrench into the already complex math for homebuyers. Therefore, potential buyers should plan accordingly.


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Sandy A. Greer