You can’t go a day without hearing that interest rates have risen this year and these higher rates are making it harder on the average consumer. There is no doubt that elevated rates are making things more expensive – especially in the real estate sector. Affordability challenges are moving some potential homebuyers to the sidelines, especially considering how much the price of homes have risen in the past few years.
Yet, there are some positive sides of higher interest rates. For one, lower rates have helped spawn the spike in home prices. And today’s rates will theoretically help cool the real estate market in this respect. Analysts are not exactly expecting home prices to fall, but if they stop rising so sharply because the market is more balanced, that would be a positive result for the long-run. This balance should bring more choices for homebuyers as the listing shortage could ease as well. Likewise, higher rates are aimed at lowering the inflation rate in other parts of the economy as well.
As the real estate market slows in response to the rise in rates, so should the economy. We are hoping for a soft landing after a robust recovery from the pandemic-induced recession. Much has been said about the Fed being late to the game when it came to fighting inflation. Now let’s hope they don’t over-react in the other direction. Keep in mind that, as the Fed raises short-term rates, long-term rates such as mortgages have already risen substantially. While mortgage rates could rise further, there is also a possibility that a soft landing could result in a leveling or even a slight easing of mortgage rates. Higher rates now with a goal of lower average rates in the long-run? That would be a great goal as well.
Dave Hershman is the top author in the mortgage industry. Dave has published seven books, as well as hundreds of articles and is the founder of the OriginationPro Marketing System and Mortgage School. Want to send this commentary and other news in a personalized format to your sphere database or on social media? Sign up for a free trial at www.OriginationPro.com.