Since the beginning of the pandemic, interest rates have been rising steadily and consumer demand for housing has not waned, leading to rising inflation in the US. The Fed recently enacted the largest interest rate hike in decades to slow inflation, but so far, this has not deterred home buyers as hoped. What does this mean for the housing market and for your bank account? That’s what we will answer in this article.

Supply and Demand

The 2008 financial crisis in the US led to a sharp decline in new home construction that continued for more than a decade. In 2022, US home buying demand, especially for single-family homes, is higher than ever. Years of under-building and now supply problems due to the worldwide pandemic has resulted in extremely low supply and very high demand. This scenario has led to a rise of over 18% in home prices in the past year.

Understanding Inflation

Simply put, inflation means that your money doesn’t go as far as it used to. Since the start of the pandemic, inflation has been leading to a greater financial burden on consumers as prices continue to increase across the board and people have less spending power. Consumer prices are up 6.6% percent from a year ago. If you have taken a look at real estate in your area, you have already seen how your local housing market has been affected by inflation. 

Rising Interest Rates

When inflation begins to reach unsustainable levels for consumers, the Fed will step in and adjust interest rates to lower demand for mortgages, making them more expensive for buyers and curbing inflated home prices. 

According to Freddie Mac, the current average rate for a 30-year fixed-rate mortgage is now 4.98%. One year ago, that rate was 3.06%. Between February 2021 and February 2022, home prices increased 19.8%.

Is the Fed’s Rate Hike Working?

Data does seem to indicate that the Fed’s rate hikes have had the intended effect on buyers. In the week ending on May 13th, mortgage applications were down 11.9%, which was the biggest decline in three months. Mortgage applications for home refinance also dropped 9.5%. This may be due to a combination of the Fed’s rate increases and general concerns over the current state of the US economy.

Will Home Prices Come Down?

While the Fed’s rate hikes are slowing mortgage application rates and fewer sales overall, it appears that it may not translate into decreasing home prices. The bottom line is that there is still a supply and demand issue resulting from a long period of decreased building, and that is a problem that will take time to fix. Analysts do expect price increases to slow down, but demand is just too high for prices to drop much at this point.

NOW is the Time for Action

It is hard to predict exactly what the market will do with so much uncertainty going on in our country and in the world. If you are considering making a move and want to sell your home for the most amount of money, there isn’t a better time to do that than right now! We have the systems in place to earn you top dollar on your home and we also have our seller programs and guarantees such as our 100% of Asking Price Guarantee. We will sell your home for 100% of the asking price or we will pay you the difference. We like to say that your price is our promise! Call us now at 304-316-6412 to learn more about this program!