For homebuyers, rising mortgage rates will make things worse before they get better.
Cities in the Sunbelt have become some of the hottest real estate destinations during the pandemic as buyers seek out more space and good weather amid more flexible working arrangements. Since March 2020, home prices are up a whopping 51% in Phoenix, according to Case-Shiller data, and they’ve increased 40% or more in Miami, San Diego and Tampa.Unfortunately, those looking to escape the real estate frenzy by renting rather than buying in the Sun Belt aren’t likely to fare much better.
Washington, D.C., saw the slowest growth of all 20 cities included in the index, though home prices still rose 11.2% in January compared to a year earlier.While rising rates will almost certainly make an already competitive market even more competitive in the near term, there will likely come a point when rates rise high enough to rein in home prices.
“Declining COVID cases and a resumption of general economic activity has stoked inflation, and the Federal Reserve has begun to increase interest rates in response,” Craig J. Lazzara, Managing Director at S&P Dow Jones Indices, said in aHigher mortgage rates create higher monthly payments, and higher monthly payments might prompt some prospective buyers to sit on the sidelines until rates drop again. That reduces competition, which puts downward pressure on prices.
“Rising mortgage rates are going to zap a lot of purchasing power for buyers, which means they’re just not going to be able to go after homes with the same aggressiveness that they might have before,” Realtor.com Chief Economist Danielle Hale . “I think it’s going to lead to a housing market that is way less intense and frenzied than we’ve seen recently.”Every Saturday, Money real estate editor Sam Sharf dives deep into the world of real estate, offering a fresh take on the latest housing news for homeowners, buyers and daydreamers alike.
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