Talks of mortgage rate hikes have been all the rage lately, but only those shopping for a new home should be paying attention, right? Wrong. Mortgage rate fluctuations have a profound impact on all of us – not just buyers. Renters, happy homeowners and investors are all connected to the housing market circle of life. Here are four ways you may be impacted. #1 - If you own a home, you may find your property value protected but no new prospects on the horizon. Homeowners who purchased or refinanced in the last five years did so at historically low mortgage rates. In this rising-rates environment, owners looking for greener pastures may soon learn that moving to a new home on the range isn’t worth it when they crunch the numbers. Owners get two thumbs up on their home value increasing into next year as Freddie Mac predicts home prices will grow at a rate of 4% in 2023 despite some recent price softening. But owners may give two thumbs down on a future move when they compound the cost of significantly higher interest charges plus higher sticker prices. In a climate where supply has already been declining since 2008, housing shortages may worsen as large amounts of homeowners feel they can’t trade in for a better deal. These would-be sellers may sit on the sidelines instead of bringing inventory to the market. #2 - If you don’t own a home, you may not be able to find or afford one any time soon. Would-be buyers that recently hit the brakes due to stiff competition may come back to the house shopping market when their lease is up. The problem? They will be met with the stark reality that interest rates have shot up so much that they may no longer be able afford the monthly mortgage. According to Freddie Mac, the average mortgage rate has more than doubled from last year’s 3.01% to the current climate of 6.7% - and rising. That means buyers who would have purchased their $350,000 home at 3% interest would now have to pay another $1,000 a month more in interest charges. If these same potential buyers have other debts like car loans, student loans or are carrying higher-than-normal credit card balances due to their need to finance more everyday purchases, the debt-to-income allowance lenders enforce may bump them off the starting blocks. Which brings me to the next point. #3 - If you rent or plan to rent a home soon, the cost may sharply rise. Many holding rental portfolios saw their chance to exit stage left and cash out a big win with rapidly rising home prices. The low interest rate environment coupled with the demand for housing churned a feeding frenzy of would-be buyers that brought excellent terms to the table. Investors holding rental properties with deferred maintenance or big-ticket repairs took the bait and ran. This transition of single-family rentals into now owner-occupied properties could constrict rental supply. Additionally, future investors seeking to enter the property market may find it difficult to do so at a reasonable rate of return with the rising rate environment - deterring them from solving the shortages. And when supply stays low and demand stays high, a likely outcome is that prices rise for renters. #4 - If you want to invest in real estate, your rate of return may suffer in the short term. Similar to the last point, investors seeking safe returns in a volatile market are met with a real estate market boasting less profitable prospects. Everything from insurance, mortgage rates, repairs and materials are on the rise. Outrunning inflation in the safe harbor or housing is a harder task than before and would-be investors need to have realistic expectations coupled with grit and determination. Especially if home prices continue to rise. Owner, buyer, seller, renter or investor - we are all impacted from the rising rate environment. While homeowners may find themselves hunkering down in their property protected from major market shifts, would-be buyers, renters and investors may be less fortunate weathering the storm. If you need to make a change to your four walls in the next twelve months, talk to a trusted advisor now who can help chart the best path for you. Kat Medaries, Founder of MT Realty Advisors, a Long & Foster Team
For informational purposes only. Not intended as legal, financial or credit advice.
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