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Market Update: The Interest Rate Craze

Updated: Jul 13, 2022

Compared to just 5 months ago, the real estate market in some ways has completely changed, and in others remains the same. The popular discussion points of supply chain shortages and increasing home prices pivoted to a focus on rising interest rates. On the other hand, inventory remains at all-time lows and prices continue to steadily rise, something buyers have become accustomed to.

Most people thought increasing mortgage rates would reduce affordability and thus decrease competition for homes. While higher interest rates do mean buyers are paying more for their mortgages, they are still not priced out of the market. For example, on a $1,000,000 purchase with an $800,000 mortgage, buyers today would pay an extra $980 a month compared to year ago (using interest rates under “Key Figures”). Certainly a lot of money, but not enough to push them out of the market, especially with skyrocketing rental costs.

Over the last fifteen years the wealth of an average US household has increased by 51%. We still frequently see situations where buyers are paying 5%-10% over market value for properties to secure a deal. The excess cash available from years of accumulating assets is helping drive competition along with the low inventory. These factors far outweigh the impact of mortgage rate increases.

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