With mortgage interest rates surging to over 6% for 30-year fixed-rate mortgages from near all-time lows, affordability becomes a pressing concern for many home buyers. Despite the significant increase in rates in a short span of time, this situation may lead to a potential decrease in home prices after a period of soaring values. This shift can have varying impacts on home buyers depending on market conditions. While some areas may experience falling prices, our region, including Floresville, has been affected by this trend recently but maybe not as much as other areas. Price drops are becoming more common.
How Interest Rising Rates Impact Home Buyers
Responding to the economic consequences of the pandemic, the Federal Reserve initially lowered interest rates. However, shortly thereafter, inflation emerged, prompting the Fed to increase interest rates as a measure to manage the rising inflation. This adjustment typically results in higher interest rates throughout the economy, affecting mortgage interest rates as well.
And these interest rising rates will impact Floresville home buyers in several ways . . .
- Buyers qualify for a lower loan amount. “The amount of a pre-approval from lenders is based on both your down payment and the monthly payment you can afford based on your debt-to-income ratio (DTI). Because your monthly payment is higher, you’ll have a lower loan amount you can handle. This could particularly impact first-time buyers because they don’t have the money from the sale of a home to offset a lower loan amount with a higher down payment.”
- Buyers may find it more difficult to find homes in their price range. “Right now, there’s not enough inventory on the housing market to keep up with supply, particularly when it comes to existing homes. For this reason, pent-up demand could sustain higher prices for quite a while. Some buyers may be temporarily priced out of the market.”
- The interest rate increase is having an effect on inventory as many sellers are not putting their homes on market if they are not having to move as the cost of homes is not decreasing as much as many expected and they may feel they cannot get a rate that makes it advantageous to sell.
- Mortgage payments will increase. Basically, this effect of rising interest rates will mean that you pay more of your monthly budget on the house payment.
The Good News About Rising Rates
The recent surge in interest rates for mortgages is directly linked to the pandemic’s impact. The U.S. government’s efforts to stabilize the economy through stimulus packages led to uncontrolled inflation, prompting the Fed to increase interest rates. This adjustment might benefit prospective home buyers in Floresville. Learn more about how this development may affect the real estate market.
Lower Prices
Recently, the Fed increased its fund rate in response to the threat of inflation. When the fund’s rate is higher, it impacts banks, leading to a rise in interest rates, including mortgage rates. This, in turn, deters borrowing and spending, effectively maintaining low inflation levels and potentially triggering deflation, which can result in decreased house prices. As mortgage interest rates escalate, the overall cost of a mortgage for homebuyers increases. According to the fundamental principles of supply and demand, elevated prices typically lead to reduced demand, consequently causing house prices to decline. While this is the typical thought process but that isn’t necessarily the case. Because sellers are more reluctant to exchange lower interest rates for a new home, they are pulling back from selling. This is resulting in fewer homes being on the market.
Reduced Demand and More Inventory
Industry experts have highlighted a significant increase in property purchases during the pandemic, as many saw it as the perfect opportunity to enter the real estate market or relocate. This surge can be attributed to various factors, with low mortgage rates playing a crucial role in creating favorable conditions for buyers to make a move before the situation changed.
The surge in housing demand in Floresville was unprecedented, with inventory unable to keep pace. However, due in part to rising rates, this trend is now reversing, leading to a decrease in demand. Consequently, supply is expected to align with demand soon. As a result, prospective home buyers in Floresville will find a more favorable market with increased options within their budget if they are open to new construction. New construction was over built and there is a glut of new builds but that isn’t necessarily the case with pre owned homes. Sellers are more reluctant to sell because of the higher interest rates. So many sellers are staying in their homes. So the amount of pre owned homes which in this area are more desirable because of the lot size has reduced.
In addition, according to the law of supply and demand, with a smaller pool of buyers and less demand, prices will likely go down especially on new construction. “The effect of the rise in the federal funds rate on demand is two-pronged. Higher mortgage prices are likely to reduce demand for houses directly – but rising inflation has increased the cost of living, meaning there’s a lower number of people who can afford a home right now.”
But You Still Need an Experienced Floresville Agent
Having rising rates is never an ideal situation for home buyers, it may result in falling prices in some areas. It “doesn’t have to keep you from going from a prospective home buyer to the newest American homeowner. It all depends on your financial situation and whether you’re comfortable taking on slightly higher monthly mortgage payments.”
And it also depends on having the professional real estate assistance you need. Prices may be coming down and competition lessening, but it remains a tough market for buyers. That’s why it’s so important for Floresville buyers to work closely with a good local agent. An experienced agent can help you find the home you want despite the competition and then help you negotiate a better deal. So if you’re ready to buy in the midst of these rising rates, be sure to contact us today at (210) 216-7722.
Floresville Real Estate Agent – Faye Y Taylor Realtor® is here for help and to answer any questions you might have
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