WRITTEN BY: MAX FITZGERALD
NOVEMBER 2021

The residential resale housing market has been at an unrelenting, torrid, insane pace since July 2020. There seems to be no light at the end of the tunnel for buyers waiting for the market to slow and turn more favorably towards the home shopper.

Housing has lined up in favor of sellers since 2012. Many thought that the pandemic would slow housing, create a deep recession, and erode home values, giving buyers that much desired edge. Instead, rates plummeted to record lows, demand escalated, the inventory of homes dropped to unfathomable depths, and home values soared to unbelievable heights.

The question on everyone's mind is, "When will this market begin to slow down?"

Ultra-Low Interest Rates Continue to Drive the Market

It seems that everybody has become accustomed to today's low-rate environment, and the motivation for buyers to lock in today's historically low rates is what continues to fuel the residential housing market. Since the start of the pandemic, 17 record lows were reached, and rates have remained stubbornly below 3% for quite some time.

Rates will not linger at these historically low levels forever. Many economists believe that rates will rise to about 3.5% by the end of 2022. While this is still a very attractive interest rate, a rise in rates will correlate to a slowing (in our case, a normalization) of the real estate market.

Home Values Have Increased 20%+ Year-Over-Year

If you currently own real estate, you have probably benefitted tremendously from the short-term appreciation gains of this competitive real estate market.

The Expected Market Time is currently at 38 days, which can be categorized as an unbelievably hot seller's market where multiple offers and sales prices above the listing price are the norms. At this point, what will decelerate the market enough to allow housing to begin to transition to a more balanced real estate market? Rising mortgage rates.

Rising Interest Rates Correlate to a Rise in Inventory

When interest rates rise, many buyers turn their collective noses away from purchasing a home because monthly mortgage payments rise and affordability diminishes. As a result, inventory rises with fewer buyers in the marketplace. This simple economic correlation of supply and demand will help provide a bit of balance to this strong seller's market.

For the real estate market to slow considerably, interest rates would need to climb above 4.5%. However, very few economists project rates to climb above 4%. For a meaningful shift to occur in this real estate market, either rates eventually climb to slow housing, or values will climb to the point that they soften demand. This real estate market is just not there yet.

Attention Buyers: Rates will not linger at these historically low levels forever.

It is not a matter of IF they rise; it is a matter of WHEN. For buyers, it is not wise to gamble on rates, or try and time the market. Interest rates are extremely low today, and this housing market is poised to continue to appreciate as long as rates are low and demand is strong. While buyers may have felt like their backs have been against the ropes for many rounds, it is wise to continue the home search to take advantage of these historically low rates.

Attention Sellers: Demand will not linger at these historically high levels forever.

For sellers, the last 15 months have been the perfect storm of high demand and low supply (aka, low competition). That said, inflated home values will climb to a point where the housing market will slow as more and more buyers stop their search due to monthly payments that are just out of reach. Couple inflating home values with buyer fatigue and rising interest rates, which will all correlate to a normalization of this real estate market.

Related Agents

Related Blog Posts