Housing competition changes little as mortgage rates rise

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As mortgage rates In the post-pandemic economic recovery, some would-be home buyers are wondering if the housing market will become less competitive. Low mortgage rates are just one factor driving competition in the housing market, and their gradual rise is unlikely to ease the frenzy anytime soon.

Low mortgage rates are a definite plus for homeowners who want refinancingbut for potential home buyers, the calculation is a little more complicated.

Today’s housing market extremely competitive, and while low mortgage rates mean more borrowing opportunities for buyers, home prices are rising at a record pace these days. All of this means that buyers may struggle to protect their dream property and may not extract as much from these low prices as they would like.

What happens to mortgage rates and real estate?

Housing prices are not determined by any one factor. number available homes for sale, mortgage rates and even construction material prices and the availability of new homes all affect how much a property is worth at any given moment.

The supply of affordable homes is particularly low in the US right now, which means buyers are competing for fewer properties. Historically low mortgage rates, about 3 percentcertainly help buyers acquire purchasing power, but most experts agree that the scarcity of available supplies is indeed putting pressure on the market.

“The inventory problem when you look at it, and its impact on house price increases and average prices, is certainly significant, to say the least,” said Joel Kahn, deputy vice president for economic and industry forecasting at the Mortgage Bankers Association. “We are still 2.3 months on the existing side and there are still jokes that many of the homes on the list receive not only many multiple offers, but several offers that exceed the list price.”

The Federal Housing Finance Agency reported that in the first quarter of 2021 biggest annual growth in average house prices since the agency began tracking this data. Prices in the first quarter of this year were 12.6 percent higher than a year earlier.

How do mortgage rates affect the housing market?

Low mortgage rates do benefit buyers by allowing them to borrow more money for a cheaper price, but mortgage interest is rarely the most important factor when someone is considering buying a home.

“For most consumers, the short-term issue is how much you have to pay in any given month,” Kahn said, but added that the impact of low mortgage rates is often not the main consideration. “Whatever the reason for buying or moving, it usually matters more.”

Are lower rates contributing to a housing shortage?

Probably not, at least not very significantly. The real problem is builders it simply cannot build new homes fast enough to meet demand for a variety of reasons.

“If the rates are lower, you can afford to raise rates a little, because that may not increase your monthly payment too much,” he said. “It’s still less of a factor than the fact that it is so competitive.”

Will Rising Rates Reduce Home Demand?

Most experts expect mortgage rates to rise slowly over the remainder of this year, but they will almost certainly end 2021 at a historic low. Basically, this means that even with higher mortgage rates, only the most marginal – in other words, the least qualified – buyers are likely to see any measurable impact on their ability to buy a home.

“The demand was driven not only by lower rates, but also by the fact that we had many households that survived the pandemic without disrupting their employment, without significant changes in their income,” said Kahn. said. “A small change in margin may change your competitiveness in a way, but this is still only part of the picture.”

Potential buyers, especially young people looking for their first home, are far more likely to be pushed out of the market by a housing price spike than by rising interest rates.

“The combination of higher rates and higher prices could pull some people out of the market,” Kahn said. “Younger buyers with a little less income, a little less credit, looking for these cheaper homes.”

Tips for competing in this seller’s market

If you want to become a homeowner in the near future, you need to prepare for an extremely competitive market. Here are some things to keep in mind when planning your buying strategy.

  • Work with a local knowledgeable agent. Someone who understands the market you are interested in will help you identify suitable properties from a limited number.
  • Do your research. The more you know about where you want to buy, the more realistic your expectations will be when you start shopping.
  • Be prepared to offer more than the asking price. Most homes on the market these days receive multiple offers, so figure out your budget and choose the homes you can make attractive offers because it will help you win.
  • Consider avoiding contingencies. When you do this, you are taking on a little more risk, but if the house does seem to be “one”, your offer may be more attractive if it has fewer conditions that the seller must fulfill. A good agent will help you understand what to write about.

Bottom line

The growth of the housing market is unlikely in the near future. While the rate hikes may hurt some potential buyers, higher home prices are likely to be harder to fight.

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