What to Expect with Higher Rates

The recent uptick in mortgage rates may have some worried about buying or refinancing a home. However, with any market change, there are pros and cons to each side. In either case, it shouldn’t shy buyers or sellers away from the dream of homeownership. We’ve provided three things to expect in a higher rate environment.

Housing Inventory to Grow. Although we’ve enjoyed very low mortgage rates over the last several years, it hasn’t been easy to find the perfect spot. The pandemic prompted lower than usual inventories and a seller’s market with higher than usual prices. Buyers and sellers experienced bidding wars, an overflow of people moving from cities to suburbs, and a higher upswing in cash offers. Today, as mortgage rates move up, we may see inventories increase. Many buyers who were avidly looking may pause rather than relocate or wait for more affordable options to arise to compensate for higher payments. Higher rates should help increase housing inventory and more balance between supply and demand.

Home Appreciation Slowing. The fast-paced appreciation in home values during a time of historically low rates has already begun to slow as rates continue to creep higher. Demand will slow and most buyers will be seeking lower-priced homes to offset higher mortgage costs. With buyer demand becoming more selective, higher-priced homes may sit a little longer. Gradually, as buyer demand for higher-priced homes slows, prices will begin to even out. Housing values will continue to grow at a more normal pace of appreciation, which is a good thing.

The Cure for Higher Rates is Higher Rates. In March, the Federal Reserve has started to begin raising rates and has told the world they will continue to do so. Ironically, home loans rates have ticked up a lot in 2022 well in advance of this Fed action. No one knows where the peak in rates will be, but there is a saying in the financial markets “the cure for higher rates, is higher rates”. History has shown when long-term rates spike higher like they have today, economic activity slows down and what is followed next is lower rates.

Bottom line: Although mortgage rates have ticked up, it’s still a good time for homeownership. The market always finds a balance, creating new opportunities to offset higher rates.

Source: Mortgage Market Guide