Interest Rates, Demand, and Prices
The housing market is an important indicator of the overall health of the economy, and residential real estate prices have been on an upward trend for the past few years. However, with the recent increase in mortgage rates, the housing market has begun to slow down. Higher mortgage rates can reduce the demand for homes and lead to a slower price appreciation for residential real estate.
Mortgage rates have been gradually increasing since the start of the pandemic, and this has had a significant impact on the housing market. Higher mortgage rates increase the cost of borrowing, which can deter some potential buyers from entering the market. In addition, higher mortgage rates can make it more difficult for some buyers to afford the monthly payments on a mortgage, leading them to either delay their home purchase or opt for a smaller, less expensive property.
Reduced buyer demand can have a direct impact on residential real estate prices. When there are fewer buyers in the market, sellers may need to lower their asking prices in order to attract potential buyers. This can lead to a slower price appreciation for residential real estate, as fewer buyers are willing to pay high prices for homes. In some cases, sellers may even need to lower their prices below what they originally paid for the property in order to sell it.
Another factor that can contribute to reduced buyer demand and slower price appreciation for residential real estate is the availability of housing inventory. If there are more homes for sale than there are buyers in the market, sellers may need to lower their prices in order to compete with other sellers. Conversely, if there are more buyers than homes for sale, sellers may be able to command higher prices for their properties. The balance between supply and demand is an important factor in determining residential real estate prices.
The relationship between reduced buyer demand and prices is a complex one. While higher mortgage rates can reduce the demand for homes, other factors such as economic conditions, demographic changes, and government policies can also have an impact on the housing market. In some cases, reduced buyer demand may lead to a correction in the housing market, where prices fall in order to align with the reduced demand. However, in other cases, the market may adjust in other ways, such as through increased supply or changes in buyer preferences.
Buying Opportunities
Overall, higher mortgage rates have slowed price appreciation for residential real estate by reducing buyer demand. This is great news for buyers, as the runaway prices seen in the 2020-2021 market seems to be a thing of the past, reduced demand means less competition. We are seeing a lot of activity in the last 30 days, including an increase in multiple offer situations, particularly for properties priced under $500k. Properties are sitting on the market for a average of 40+ days versus 10-12 days a couple years ago. Many sellers are lowering prices, buying down buyer interest rates to make payments more affordable, and contributing to buyer closing costs. Additionally, there are a few grant programs that assist with down payments, these programs receive funding and then end when the money runs out. Buyers with a relationship with a reliable realtor will have an advantage, as the agent will keep an eye on these programs and let their client know immediately when these programs have received a new round of funding.