How Mortgage Rates Affect Real Estate Sales
During the COVID-19 pandemic, we saw historically low mortgage rates across the country. Unfortunately, in 2022, interest rates are expected to rise to help cool off a red-hot real estate market. Experts are predicting that the Federal Reserve will raise mortgage rates to nearly 4% at the end of 2022, up from the low 2% we saw over the last couple of years. Mortgage rates and real estate go hand in hand, so how will these rising rates affect the market? Hudler Homes is breaking down what to expect from rising mortgage rates and how this will affect both buyers and sellers in the new year.
What is a Mortgage Rate?
Before we get too deep into mortgage rates, it may help for us to explain what a mortgage rate actually is in simple terms. A mortgage rate is the amount of interest charged on a mortgage. These rates are decided on by a lender, based on a potential borrower’s history. This includes employment status, credit score and other factors. Mortgage rate averages rise and fall throughout the year. The higher the mortgage rate, the larger effect this has on the housing market.
Mortgage Rates in 2021
As mentioned above, we saw historically low mortgage rates in 2021. In January of last year, the average home mortgage rate for a 30-year fixed loan was 2.65%. As we write this blog post, that average has jumped to 3.81%, so a significant increase over the last year. In 2020, the Federal Reserve lowered mortgage rates to combat the effects of the COVID-19 pandemic. Suddenly, more potential buyers could afford owning a home. This factor, coupled with other reasons, led to the housing boom we’ve seen over the last two years. But what happens when mortgage rates rise? Are we still in a seller's market?
Mortgage Rates and Home Sales
To understand what might be in store for future home sales with rising interest rates, it’s best to look at the past. Rising mortgage rates do not always lead to fewer home sales, according to historic data. Over the last 30 years, there have been six significant mortgage rate increases. Only two of six of these increases have led to a decline in home sales. One example of this was in 2005, before the Great Recession that rocked the real estate world. However, in most cases, rising mortgage rates did not significantly affect the housing market.
The Market is Still Strong
Experts are predicting that we are still looking at a strong housing market going into 2022, even with an expected rise in mortgage interest rates. Many factors could be driving this reason, including a still limited home inventory and a new wave of potential buyers entering the house marketing: Millennials. Millennials are driving an increase in buyer demand and that trend is expected to continue in 2022, even with rising mortgage rates.
If you have additional questions about how rising mortgage rates can affect real estate, the right real estate professional can explain how it works in more detail. If you are looking for a real estate agent who knows the Baltimore area and can help you explore your options, I’d love to meet with you. Reach out to me through my website or give me a call at (302) 545-8569 and follow my blog for more home buying tips!