The REAL effect of interest rates on the market
People think of the effect of interest rates on purchasing power, and thus demand and pricing, and that is true and important but it doesn’t lay out the full picture.
Every 1% decline in rates brings 5 million more prospective buyers into play (and the reverse is of course true). That doesn’t mean they will buy though. Why might they not? In this region, mostly because they don’t have something to buy because of the inventory shortage. Remember when you hear stories of houses with 7 offers on them, 1 person got a house and 6 are still looking. The more profound effect of interest rates right now has been on the SUPPLY side!
92% of borrowers have mortgage interest rates below 6% and 20% have interest rates below 3%! People move for a host of reasons, but If you have a 500K mortgage at 3% and are looking at an 800K mortgage at 7% that will certainly give you pause. This dynamic has largely wiped out the move up market locally and severely restricted supply. I believe we will need a retreat in rates to the 5’s to fundamentally alter this dynamic. The recent rapid rise in rates was necessitated by foolish budgetary and regulatory actions that caused real inflation for the first time in 40 years. Inflation absolutely must be slain first, but when it is a retreat in rates is expected. That will increase supply but also bring more buyers into the market so don’t expect a drop in prices.
As you can see, the law of unintended consequences is in full swing. But this market, like all of them, is manageable if you have a capable and informed broker and team supporting you. If you are contemplating a move please reach out and we’ll chart the best course for you!
It’s a good life.
Chris
