As the mercury rises, will the housing market heat up—or continue to slump?
The story of the housing market over the past year or so has been how rising mortgage interest rates have decimated affordability, sidelining and pricing out would-be homebuyers. However, higher rates have led to an even larger problem: a worsening shortage of homes for sale and a likely summer real estate slump.
Homeowners have been reluctant to trade up or down, or relocate and give up their record-low mortgage rates. That’s left buyers with very little to, well, buy.
“The housing market’s going nowhere fast,” says Mark Zandi, chief economist of Moody’s Analytics. “It should be a weak summer.”
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Interest rates are rising, and it’s the talk of the town right now. Yes, they have gone up. But they also have been historically low. When I first got my license, the interest rates for many of my buyers was over 4%. About 20-30 years ago, interest rates were much higher at times, 9%, 12%, 14% were not uncommon numbers to hear. It wasn’t until after 2010 that rates were mostly below 5%. So even though we are experiencing a rise in rates, given the historical perspective, they are still way below the rates that we were seeing in the 1980’s, 1990’s, and early 2000’s.
What does this mean for the average buyer? Every time the rate goes up, the buying power is reduced. Especially for first-time buyers who usually have less money to put as a down payment and need more money from a lender to help purchase their first home. But if you look at the last few decades, even rates of 4%-5% are still low compared to what we saw in the last few decades.
So, if buying a home is on your to do list and interest rates are rising, get pre-approved with a reputable lender as soon as you can, start your search, and then when you go under contract you can “lock in” your interest rate for a period of time. Don’t forget to ask your Realtor and lender what first-time homebuyer benefits they might be able to use. In D.C. there are programs such as DC Opens Doors, HPAP and EAHP. Maryland and Virginia have their own programs for first-time buyers, or sometimes they offer tax breaks for qualified buyers. The important thing is to have experts in real estate and lending to advise you as you make your first move into the real estate market.
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