How rising rates will change the housing market. Single family home with yard.

In 2021, home prices rose 17%, the highest on record in the US. At the same time, mortgage rates hit an all-time low (Arnold, 2022).

76% percent of people in a 2021 survey by Fannie Mae said they believed it was a good time to sell a house. In contrast, only 26% of people agreed it was a good time to buy a house. This seller’s market means there are more people looking to buy than there are homes available (White, 2022).

With such an inventory shortage, new home sales have been the most prolific. Unfortunately, the purchase of a new construction is becoming out of reach for first-time and lower-income homebuyers, because the average cost of a new home has increased to $408,000 (Lieber, 2022).

The federal government is executing a series of changes to help mitigate the economic impacts of COVID-19. One of these is to increase the rates banks charge each other for short-term loans, which may lead to an increase in mortgage interest rates (Lieber, 2022).

What does this mean for the housing market?

No one can say for sure, but White (2022) predicts that the increase in the cost of homes will slow down, but not stop entirely. In 2018, the increase in mortgage interest rates slowed down the housing market inflation, so it’s possible we will see a similar trend in 2022 (Lieber, 2022).

While dampening the skyrocketing price of homes would be a positive effect, increased interest rates would also mean higher mortgage payments. This may make homeownership unaccessible to people on a fixed budget or with lower incomes. (Lieber, 2022).

What about housing inventory, though? Arnold (2022), believes the economic impacts from COVID-19 will take some time to correct.

After the COVID-19 financial crisis, quite a few home builders lost their businesses, so not as many new homes were built in comparison to prior years.

That in combination with the global supply chain shortage is likely to keep housing inventory low, continuing to drive up the cost of homes. Until the supply chain is restored, it’s most probable that the housing inventory will not improve.

Higher interest rates may help mitigate this, Arnold (2022) predicts, so we see a much milder increase in housing market inflation in 2022. Perhaps, pre-existing homes may become more affordable as a result.

With the federal government taking steps to reverse the COVID-19 economic damage, we can hope to see gradual improvements in both inventory and cost of homes in 2022.

As a Realtor® and Broker who is passionate about helping people, I can help you get the best value when you sell or purchase a home.

Click here to set up customizable saved searches, so you’ll get notified as soon as a home that meets your criteria is listed. 

Contact me if you’d like to schedule a showing. I’m looking forward to working with you.

Arnold, C. (2022, January 20). Home prices rose faster than ever in 2021. The typical home gained $50,000 in value. National Public Radio.

Lieber, R. (2022, February 19). Rates are rising. You want a house. What will happen next? New York Times.

White, C. M. (2022, January 31). What to expect from the housing market now that the Fed has signaled rate hikes. NBC News.