October 31, 2022

Rising interest rates dampen fall home sales

As we roll into fall of 2022, home shoppers are navigating unprecedented economic volatility.

The Federal Reserve has made multiple baseline interest rate hikes in 2022, which have filtered down to home mortgages. By all indications, the central bank will continue raising rates into 2023.

In the days before the coronavirus crisis of 2020, real estate prices rose in the spring and peaked mid-summer before dipping in the fall and winter, potentially saving off-peak buyers thousands of dollars.

But the pandemic completely re-wrote the price playbook, with demand and home values rising steadily from May 2020 forward, culminating in record high prices each month for more than two years. Even as demand began to cool with the Fed's first hikes this spring, prices continued upward, with the median sales price peaking at an all-time high of $449,000 in July.

But the interest rates applied the brakes to 2022 home-buying activity. Year-over-year sales are down 31%. In September, pending sales - signed sales contracts - dropping a worse-than-expected 10.2%.

If you are among those still in the housing market this fall, you will likely still find a tight supply, but may also find that much of the competition has dropped like the leaves from the trees, content to wait until the housing sun shines again. Many current homeowners are unwilling to give up on their low interest rates to trade up to a new home.

While red-hot home prices are cooling, it is so far not enough to make up for increasing interest rates. Fall homebuyers' monthly payments are nearly $1,000 more on average than they were in January. Home purchase mortgage applications are down 40% from their peak in 2021.

As competition dwindles, buyers who remain in the market can be more selective. Listings have increased overall.

With inventory slowly but steadily recovering, houses that would have flown off the market last year are lingering, forcing some sellers to show their true colors. Price cuts have more than doubled. In August, the median home sales price dropped for the first time in 26 months. In September, it slipped again.

And while experts expect sales to keep slowing as the fall rolls into winter. waiting for prices to get better or for mortgage rates to improve is a risky game. Buyers who wait for the perfect time might miss out on the perfect home.

Mortgage rates are unpredictable. There is no telling where they go from here. One thing is for sure: The sooner you buy, the sooner you start building equity to help realize your family’s dreams.

At Bay Equity Home Loans, we work tirelessly to match you with the best mortgage loan product for your situation. Along with a full array of conventional and Jumbo loan products, we offer low-interest, low down payment programs from the FHA and the USDA. Former and active duty military members may qualify for a home loan through the Department of Veterans Affairs. Older Americans can investigate their options with the federally-insured Home Equity Conversion Mortgage (HECM) - also called a Reverse Mortgage.

Call, email, or drop by one of our many branches nationwide. We’re here to get you home.