Looks like mortgage rates are going to rise and home inventory should start to pick up. Home prices are still increasing at a fast past and probably will continue through this year. According to First American’s Real House Price Index (RHPI), affordability declined 21.0 percent compared with a year ago, as the growth in nominal house prices combined with the 30-basis point increase in the 30-year, fixed mortgage rate vastly outpaced the 4.4 percent increase in income. Affordability is likely to decline further in 2022, because both mortgage rates and nominal house prices are expected to rise. Here is what this will mean for you in the Spring.
Fed Expected to Raise Rates Soon
The Federal Reserve has announced rate increases will come due to fear of inflation. The long-term bond yields are also increasing and the mortgage rates usually follow the same pattern as long-term bond yields. The Federal Reserve is tightening monetary policy, higher inflation expectations, and an improving economy. The majority of economists believe the 30-year fixed mortgage rate will increase to 3.7% by the end of this year.
Rising Mortgage Rates Likely to Reduce Affordability
The Real House Price Index which measures housing affordability based on changes in income, interest rates, and nominal house prices, can help industry leaders determine how shifts in interest rates and income can affect homebuyers’ power and affordability. Let’s face it, an increase in mortgage rates will impact affordability. When the rates increase, it usually means that the economy will improve and there will be stronger wage growth. A higher-income can even the playing field when it comes to an increase in home prices and interest rates.
FOMO (Fear of Missing Out) or FOBO (Fear of Better Options)?
Homebuyers are continually watching the interest rates, and many are buying homes now in order to avoid further inclines in the rates. It is reported that the rates will increase steadily through the remaining months of 2022. Many potential home buyers have FOMO, the fear of missing out, on the historically low-interest rates. Buyers are jumping into the market and pushing the springtime surge. On the flip side, the springtime is the time a lot of sellers list their homes and this might put homebuyers into the FOBO, fear of better options, mode. There may be better home options out there even if the prices are higher.
If you are in the market for a home, contact a local Realtor who can help you with the home buying process. A Realtor can also find the best neighborhood and home for you.