November 10

Analysts Predict Rising Interest Rates Will Not Slow Housing Demand

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Analysts Predict Rising Interest Rates Will Not Slow Housing Demand

By: Charles Sells

5 Small houses sitting on top of stacks of coins. Each stack higher than the previous with a arrow pointing up and to the right.

Although many would-be homebuyers are waiting on a projected rise in interest rates to possibly lower the prices on hot single-family homes, new data from the National Association of Realtors (NAR) indicates that the better move might be to go ahead and grab what they can get. Conventional wisdom states that rising interest rates result in lower buyer demand (and, by extension, possibly result in lower price tags), but the 2021 housing market is anything but conventional – as we well know! The latest information from Freddie Mac economists and NAR analysts indicates rising interest rates will likely have little impact on housing demand.

“Even as the availability of existing homes is improving, prices remain high due to homebuyer demand and limitation on housing starts and permits resulting from the ongoing labor and material shortages,” observed Freddie Mac chief economist Sam Khater in mid-October 2021. He added that this would continue despite the fact that “mortgage rates continued to rise this week due to the trajectory of both the economy and the pandemic.”

NAR senior economist and director of forecasting Nadia Evangelou predicted that interest rates would continue to rise in 2022, noting that rates had risen 10 basis points (0.10 percent) since the start of October. “How will these higher rates impact homebuyers?” she asked rhetorically, answering, “For every home purchase that involves a mortgage, both the rate on the mortgage and the price of the home will affect the size of the monthly mortgage payment. In the meantime, home prices continued to surge.”

Typically, Evangelou said, home prices tend to rise about 4 percent over the course of a 12-month period. In 2021, they have risen 17 percent in just 10 months. “As a result,” she concluded, “millions of homebuyers have already been priced out even though mortgage rates are low.”

Since almost 5 million fewer households can now afford a home (compared to the same time in 2019), it seems likely that rising mortgage rates will not soften up the market to the extent that it shows marked changes in trajectory in the near future. Evangelou went so far as to predict that another 7.4 million households would be priced out in 2022, with 1.1 million of those being first-time homebuyers. Savvy real estate investors who are able to either acquire and rent out attractive single-family homes or work out creative financing options that might enable homebuyers to eventually purchase a home they are renting while paying an affordable rate will be in prime position in 2021 and the New Year.

 

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Housing demand, housing predictions, Rising interest rates


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