As you may have noticed, inflation is going crazy. I noticed it when my receipt for the grocery store was about 75 percent higher than average (okay, maybe I bought a few more bottles of wine!) and while I was at the local gas station the attendant was increasing the price of gas by 10 cents a gallon. Wow! That really hurts my wallet.
So what is the Federal Reserve doing to tap down inflation? The main tool they use is raising interest rates. Right now they are projecting four rate increases this year. Those should bring us into more normal rates but what is normal in the real estate world? A great article from Penny Mac had this to say:
“What many of us might not recall is the ultra-low rate environment we’ve been in as of late is historically anything but normal.
Consider the example that in the week of Nov. 15, 2018, the average 30-year fixed-rate mortgage (FRM) was 4.94%. It wasn’t until March of 2020 that rates dropped to the dramatic lows we’ve had since then, dropping to the lowest in 50 years in early January, 2021 at 2.65% (according to Freddie Mac). It’s difficult to know if we will ever see such low rates again.
And let’s not forget that back in 1981 when inflation was raging at comparable levels to today’s, mortgage rates jumped to an astounding high of 18.45%. We can all thank our lucky stars that’s not in the forecast for anytime soon.”
So while we have enjoyed ridiculously low rates it makes sense they have to go up to keep inflation down. Will this impact real estate? Of course it will but it may just mean sales slow down. Analysts are not predicting it will cause prices to crash. Time will tell but if I were a buyer I wouldn’t sit out waiting for a market crash. With interest rates going up it may be a wash on the monthly mortgage payment even if we have a slight correction on prices. We still are seeing 5+ offers on every property so it will take some time for the market to absorb those buyers. Lack of supply and a strong demand continues to be a stronger influence on the real estate market than rates.
All I know is when gas is $4.89 a gallon it makes staying home even more attractive so the value of home increases in my world.