New Report Shows The Upside To Higher Mortgage Interest Rates
If you've been scouring the market for a new home or keeping an eye on recent trends, you know that housing prices have been soaring. According to data compiled by The Ascent, the median price of a house in the United States has increased by 30% since 2020 as a result of homeowners' reluctance to sell and an increase in buyers during the pandemic. Relatively low mortgage rates also contributed to an influx of first-time homeowners, but now, those lower rates are a thing of the past.
Luckily, there's a benefit to this seemingly-dreary rise in rates and a foreseeable end to the massive spike in home prices. The pandemic had major effects on the global economy, but as the world begins to settle into a new normal, the housing market follows. Here's why higher mortgage rates might signal a positive change for potential home buyers and how this change might unfold in the coming years.
Higher rates lead to lower prices
In a market with low supply and high demand, sellers hold all the power. They're able to increase prices at will, but at a certain point, buyers will no longer be able to afford the available homes. That's exactly what's happening now. "We know that buyers in today's housing markets are facing significantly higher costs –with the monthly mortgage payment for the median listing-price home up nearly $1,000 per month. Many buyers cannot navigate the housing market in the face of these higher costs," says chief economist Danielle Hale in a recent Realtor.com report. Essentially, higher mortgage rates turn away buyers, decreasing competition.
This change means that sellers are finally being made to decrease housing costs to attract more offers on their properties. As the market continues to level out, a more normal pattern of increasing prices is likely to take hold, marking a gradual end to the massive boom caused by the pandemic.