The housing market is seeing a serious toll after the Federal Reserve’s rapid interest hike. This explains why home prices and sales have seen a fall all throughout this year in 2022. A major reason for this is also because buyers have been recoiling from the mortgage rates which mostly increase, and real estate is for sure one of the first and most important sectors that is being affected by Fed rate hikes.
Also, recently the Fed has been boosting its baseline interest rate range, as well as the borrowing costs for consumers and businesses have been seen to go uphill along with this. Usually, in most cases, it is seen that the average rate for a 30-year fixed rate mortgage had risen to 5.3 per cent just at the end of last week. This was 3.1 per cent high just when this year started.
This is the time when most mortgage rates have been falling slightly since the time when there was the peak owing to the Fed’s hike in rates during the month of June this year in 2022. Owing to this increase in interest rates there has been quite a setback to what was an already “hot housing market”.
According to most experts in the housing space, the ongoing decline in affordability is mostly due to the fact that the mortgage rates have been increasingly high. This is quite the opposite of what had happened last year in 2021, where the main driver was the higher home prices.
Again in the year 2020, the housing and sales prices had risen to double digits and this was owing to near-zero Fed interest rates, trillions of dollars in fiscal stimulus and several months of lockdowns during the pandemic that led to a surge of buying homes. The following year in 2021 there was a little decline in sales, due to the higher prices in the market, and also because there was a shortage of homes.
Amid all this, the refusal of the Fed to increase the interest rates had led to higher prices and borrowing costs for the buyers who got rattled by the high prices in the market. As of now, experts share the view that the Fed has been moving the market quite in the opposite direction because the market has become more expensive for buying homes.
The experts also sare that the housing market is one which is interest-sensitive and since the mortgage rates have been rising over the last few months, there were several buyers who chose not to buy homes owing to the increase in home prices. In the case of most people, they buy homes on the basis of the monthly payment that they have to make. So, it is an obvious fact that most people are going to back out if the monthly mortgage payments get higher.
On the brighter side, when there are few buyers in the market, this could mean less competition for homes, leaving an opportunity for the prices to come down in the future. However, that being said most builders wouldn’t want to construct more houses and bring them to the market if there isn’t anyone to buy them.