In a June firsttuesday poll, readers were asked: what effect have higher mortgage rates had on homebuyer decisions in 2022?
The results were staggering, with 90% of the 144 respondents in agreement of homebuyers being less inclined to buy.
However, the remaining 10% believed homebuyers were more inclined to buy under the circumstances. It’s possible this minority believes today’s rising rates are influencing homebuyers to purchase before rates rise even further.
A similar poll was conducted in 2019. Readers were asked to weigh in on how higher mortgage interest rates will impact the housing market. Of the 71 responses received:
- 72% said sales volume and prices will be adversely affected;
- 11% said prices will stop increasing;
- 11% said there will be no affect; and
- 6% said only sales volume will be impacted.
This “what if” scenario is quickly becoming a reality. The average 30-year fixed rate mortgage (FRM) rate increased to 5.70% in the week ending June 24, 2022. The average 15-year FRM rate also rose this week, to 4.83%. This continues an upward run on FRM rates which began in January 2022. Compared to the historic low rates during 2020-2021, today’s high rates have decimated buyer purchasing power.
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Less able to buy with high rates
High interest rates translate directly to decreased money available to homebuyers and refinancers.
Reduced purchasing power is incompatible with California’s significant home price increases. In 2020-2021, low interest rates helped homebuyers keep up — and indeed, helped to fuel — home price increases. But now that interest rates have reversed course, home sales volume has fallen back and prices will quickly follow.
The majority 90% of readers know higher mortgage rates are discouraging homebuyers. Looking ahead to the next several years, mortgage interest rates will be even higher than they are at present. The housing market is unsteady under this umbrella, but prices are expected to follow home sales volume’s downward path in the months ahead. Today’s home prices will lose momentum later into 2022.
Real estate professionals who wish to survive the slowdown will prepare now.
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