Its no secret that ultra-low mortgage rates fueled the home buying frenzy. For nearly 5 years we witnessed a stedy increase in home prices, well above the normalized rate of ~4%. But what was really behind the steep climb…?
Factors Affecting Rapid Home Price Increases 2018-2022:
- Historically Low Fixed Interest Rates – hovering under 4% with 15 Year Rates below 3%
- High Demand – Increase in qualified buyers seeking to get off the rent wagon
- Mobility – the Job Market & hiring competition provided mobility between cities
- Inertia of the Market Itself – the stable rapid increase in pricing fueled FOMO
All factors combined made buying a home a sporting event. Armed with a mortgage pre-qualification, buyers frantically watched the new listing alerts, had their agent on speed dial and ran out to see new listings at a moments notice. The successful home buyers bid over asking, often substantially, and waived all or part of any appraisal shortfall. Homes were even purchased sight onseen with no inspection. CRAZY, right?!
But what was the underlying reason that homes increased so rapidly?
Simply put, people were buying a low mortgage irrespective of the price of the home. The low interest rates had buyers simply calculating their monthly loan cost as compared to where they currently lived. With increasing rent costs in many metros with rents of $2000 or more, that differential bacame a no-brainer. In example, $2000 could buy you a $500,000 where under nortmal interest rates of ~5.5% could only buy a $270,000 home. In the wake of this dynamic, that $270,000 home became $400,000 almost over night.
What Goes Up Must Come Down?
Today, we ave seen one aspect of the rapid price growth born out of low interest rates. But it is not home always prices that have come down in most major metros. It is the buyer traffic. Buyers have been cautious due to the cost of a mortgage AND hopeful speculation that rates will receed, if only a little, beofre they set out to buy. At the same time rents have been high and rather stable, lisiting inventory is increasing across the country and home prices have remained rather stable. Indeed, in major markets, home prices continue to rise.
So, if where you want to buy continues to rise, what is the cost of waiting???