Since January 1, 2022, interest rates have jumped more than 1.0%. Ongoing concerns regarding inflation are driving the market and pushing COVID-19 concerns aside. Last week the Fed announced they are going to raise interest rates in 2022 and at a faster pace than the market expected. The Fed stated they expect to increase interest rates three times in 2022 with the first increase coming in March. The markets actually expect the Fed to increase rates four times in 2022.
Does this mean the market is going to slow down? The answer is in what motivates people. It may seem counterintuitive, but the increase in rates will create a renewed sense of urgency in many buyers as they look to purchase their new home before rates move even higher. A recent survey showed that almost half of all buyers, 47%, would feel more urgency to purchase a home if interest rates get to 3.5%
Rates are going up, but almost one-half of the Market will feel a greater urgency to purchase a home. How does this make sense? It is all about affordability and missed opportunities. Rents continue to increase. Even when rates reach the 4% level, and they will, a mortgage payment will be lower than paying rent in most Markets. This means owning a home will still be cheaper than renting. In addition, the ongoing inventory challenge, which is not going away, will keep pressure on home prices. Homebuyers will remain motivated as they will not want to risk the further increase in housing prices.
Yes, interest rates are going up, and 4% is likely by the end of 2022. The increase in interest rates may actually fuel the Market faster. Focus on affordability and remind your clients buying a home is more affordable than renting and home prices are not going to get lower. Rates are going up, but 2022 will still be a great year to buy a home.
If you are looking to buy a home in Southwest Florida, be prepared to move fast. Partner with one of Downing-Frye’s professional REALTORs® who understand the local and international real estate market.