Resale Home Market Reacts To Rising Interest Rates

  • June 3, 2022
  • 3 min read

The real estate market, a dynamic and ever-changing landscape, is currently experiencing a seismic shift that has far-reaching implications for homeowners, potential buyers, and industry professionals alike. At the heart of this transformation is the trajectory of interest rates, which are poised to climb even higher in the coming months. In this blog post, we explore the potential consequences of this upward trend, particularly focusing on the fate of resale homes.

The Current Interest Rate Landscape

As we stand on the cusp of a new era, interest rates in the housing market have already surpassed the five percent mark, hovering around six percent and projected to potentially reach seven percent by the year’s end. The repercussions of such rate hikes extend beyond the financial realm, significantly impacting the monthly payments associated with home purchases.

Unraveling the Numbers: A Case Study

Let’s delve into a practical example to grasp the tangible effects of escalating interest rates. Consider a home valued at $350,000 in 2020, financed at a favorable interest rate of 2.5-2.6 percent. Fast forward two years, and the same home is now priced at $400,000 or more, with interest rates exceeding five percent. The result? A monthly payment surge from $1,400 to approximately $2,100 – a staggering increase of $700 or nearly fifty percent.

The Resale Market Dilemma

The burning question arises: How will these escalating interest rates influence the resale market? Contrary to conventional wisdom, it’s unlikely to trigger a decrease in home prices. The underlying reason lies in the persistent demand from buyers who were sidelined during the frenzied market of 2021 and 2022.

Buyer Psychology and Market Dynamics

Buyers who couldn’t secure a home in the previous years weren’t deterred by price alone. The scarcity of inventory, cash buyers swooping in, and intense competition for available houses contributed to their frustration. With a surge in housing inventory anticipated in 2022 and 2023, these buyers are poised to reenter the market, willing to accommodate higher mortgage payments for the chance to finally secure a home.

The Plateau Effect

While some may anticipate a decline in prices, the reality is more nuanced. Price reductions seen on real estate platforms often reflect a decrease from inflated peak prices rather than a regression to 2019 levels. Houses that were once listed at $450,000 might experience a reduction to $440,000, but this is still above the 2021 pricing.

The Future Outlook

Looking ahead, the housing market’s fate becomes a subject of speculation. The surge in demand may sustain the current dynamics for another year or more. However, by 2023 or 2024, external economic factors could come into play. If a recession or economic crisis ensues, the landscape may shift drastically, with the government having limited capacity for additional stimulus measures.

Indicators of a True Market Decline

For those keenly observing the market, three key indicators may signal a genuine decline: sellers experiencing capitulation, the government intervening to prop up the mortgage business, and a shift in the government’s stance on its involvement in the mortgage market.

Share Your Insights

If you’re part of the mortgage or real estate industry, we invite you to share your thoughts and observations in the comments section. How are these market dynamics affecting your business, and do you foresee a significant shift in the near future? Your insights could provide valuable perspectives as we navigate through the evolving landscape of real estate in the face of rising interest rates.

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