If you need assistance, please call 480-775-7700

How Mortgage Rates Are Affecting the Market

Monday, November 5, 2018   /   by Bret Johnson

How Mortgage Rates Are Affecting the Market

The average mortgage rate is at a seven-year high. Is this what’s behind the shift we’re seeing in the market?



Today I’d like to address what the recent shifts in the mortgage rates mean to real estate. I’m hearing questions about this a lot from clients new and old about how this should affect their decisions moving forward.


The average 30-year fixed mortgage rate for someone putting down 20% with a 720 FICO score currently stands at around 5.25%. That's
near a seven-year high, and almost 0.1% higher than just a year ago.


What impact is this having on the real estate market? It's certainly true that affordability is down. In fact, one estimate from June found that home affordability is at a 10-year low. This is translating into fewer home sales, fewer viewings, and fewer mortgage applications.


However, I don't believe that the shifts in the mortgage rate is the primary mover of the changes we're seeing in the real estate market. In fact, even at its current level, mortgage rates are still historically low.


Instead, the big reason for the changes in the real estate market is the ongoing growth in prices. Over the past several years, home prices have gone up at close to twice the rate of inflation, and have far outstripped the growth of incomes.


The price increases, in turn, have been caused by a lack of inventory, which has been shrinking for the past three to four years. In my opinion, it’s this lack of inventory (and the resulting hike in prices) that explains most of the effects on the real estate market that I listed above.


What does this mean for you? If you're looking to sell, you should still have no trouble doing so. Demand continues to outstrip supply, and even with dropping affordability, it's very likely that you would find a buyer quickly and at a top price. This could change in the next year.


If you're looking to buy, the picture is more complex because it's so hard to predict what the mortgage rate might do in the near term. One thing we do know is that the severe lack of inventory is unlikely to change anytime soon. You might want to look at buying sooner rather than later because even a quarter percent of an increase will greatly affect affordability for most buyers. We could end up seeing them go to a level that prices some buyers out of the market.


As always, if you have questions about the real estate market or your personal situation, whether you're buying or selling, you can give me a call or send me an email. I'm here to help.