Earlier this year, we got tipped off to the Federal Reserve’s plan to raise interest rates. By going all in last month, the Feds quickly proved they were not bluffing. The result? The hand the real estate market has been dealt is one of 10-year high interest rates. Where will interest rate impacts hit? Immediate impacts of interest rate increases - and the rumors of and uncertainty around future increases - first reached new construction. Builders already scrambling to confirm material costs and finalize home prices had to contend with financing increases. Add to that home buyers not knowing what their interest rate will be at closing and whether they can afford their monthly payment when the home is finally built and you can see why the industry was first hit. But the ripple effect may have now reached the thousands of home shoppers, too. Curbing inflation or marginalizing buyers? The reason the Fed’s raised interest rates was to curb inflation. The thought being that if buying power for commonly financed big ticket and luxury items is diminished, fewer people will buy. And if fewer people are buying, that should reduce demand and put the skids on rising prices. While it's yet to be seen if the economy-stabilizing trick of rising interest rates works on this round of inflation, the unintended consequences of rising interest rates may be to push affordable housing access further out of reach of lower income buyers - holding back their dreams of homeownership and the wealth-building opportunity real estate has historically provided. What does it mean for this generation of home buyers? Since this time last year, interest rates have jumped about 2%. That means an extra $400 a month for a $300,000 home. Couple this with historic supply chain issues and rising inflation, and it is easy to see how affordable houses - and the Americans who seek home ownership as a way to build wealth in retirement – stand to lose. In fact, Freddie Mac’s Chief Economist Sam Khater remarked that higher interest rates coupled with all the other market challenges could make “the pursuit of homeownership the most expensive in a generation.” Wealthy buyers – buyers above the median home price – are also impacted by rising interest rates, true enough. And no one likes paying more money for the same thing! But the increased cost is proportionately lower as a percentage of their income making rate hikes less of a sting. How should you respond? While this generation of first-time homebuyers has more access to information on the benefits of owning real estate, they soon may find winning at the real estate game is harder than it appears. Making a game plan and taking steps to set your offer apart from others is key. Buying takes planning; planning takes time. So if you are thinking of buying in the next 18 months, it’s never been more important to get ahead of the pack with a good strategy and a trusted advisor. While the chips will fall where they may, Lady Luck tends to favor the prepared. Never want to miss a post? For more useful real estate tips & tricks, subscribe to my mailing list or contact me with any real estate questions.
Kat Medaries, REALTOR® Long & Foster Real Estate, Village of Midlothian Sales Licensed to sell in the Commonwealth of VA Equal Housing Opportunity For informational purposes only. Not intended as legal, financial or credit counseling advice.
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