Understanding the Impact of High Interest Rates, Inflation, and Demand on the Real Estate Market
In today's residential home sales market, three key factors are shaping the landscape: interest rates, pricing, and inventory.
It's essential to grasp how these elements are interconnected and what they mean for you as a prospective homeowner or seller.
We all know that high interest rates can be a major hindrance for anyone looking to make a real estate investment.
If you missed the window between 2020 and 2022, you missed out on a remarkable opportunity to secure a low, remarkably low, interest rate.
It was an era of unprecedentedly low rates, and both buyers and sellers grew accustomed to the idea of these rates enduring for an extended period.
To counter economic challenges, the Federal Reserve took the bold step of lowering interest rates, aiming to stimulate the economy.
As a result of these rate cuts, an avalanche of individuals sought loans to purchase homes, which led to a decrease in supply and a continuous surge in demand. Consequently, home prices soared.
Fast forward to 2023, and interest rates have climbed from a mere 2.5% to a substantial 7.5% within a year.
The Federal Reserve sought to apply the brakes to the economy due to persistently rising inflation over the past three years. While they claim that their measures were effective, many Americans, myself included, remain skeptical. The cost of goods and services remains high, albeit somewhat curbed by the Fed's actions.
The consequence of the prolonged low-interest rate environment over the last three years is now impacting both new and existing homeowners. Most of them secured mortgages at rates below 3.5%. Now they face a challenging decision.
Consider this scenario: A homeowner with a 3% interest rate has just welcomed a new family member and needs a larger home. They possess a 3% interest rate and $150,000 in equity. Their dilemma is whether to stay in their current home with a 3% interest rate or take on a higher mortgage payment to accommodate their growing family, likely incurring a significantly more expensive home due to both size and that daunting 7.5% interest rate.
Another example involves a couple whose children have left the nest, prompting them to downsize. They've resided in their home for an extended period and have refinanced multiple times for various expenses. Selling their current home and moving to a downsized residence with a higher interest rate would reduce maintenance costs. However, their monthly payment would likely remain comparable to what they had before.
Every situation is unique, but these scenarios reflect the concerns of many individuals in this evolving market.
Now, we face a different trifecta in 2023.
Inflation has tapered off, but home prices continue to surge due to a limited inventory. Homebuilders are struggling to keep pace with demand, and new buyers find it increasingly challenging to afford the prices of new construction homes.
The dilemma lies in the rapid simultaneous rise of inflation and home prices, with average incomes often falling short of qualifying for homes in desirable areas. Just three years ago, you could find a decent home in Cincinnati for the 200s, but now, new construction condos and townhomes start at a hefty 325k.
You Need A Good Realtor in the Market
There's much to unpack here, and if you have lingering questions after reading this, please don't hesitate to contact me. I would enjoy the opportunity to walk you through various scenarios, guiding you toward the path that best suits you and your family, whether it involves buying now or later, selling now or later, or if an investment property is right for you.
There IS a solution for you, we just aren’t in a market that allows for a one-size-fits-all solution. That’s what I’m here for! In this tempestuous time in your life, my experience can offer you assistance, counsel, and guidance to make the best real estate decisions.
K. MICAH MAUPIN
513-375-8522
micah@treorealtors.com
@agentmaupin
