There’s no denying interest rates have been climbing as the temperature outside has fallen. And just like being surprised when stepping out on a brisk fall morning, these higher rates are shocking to many homebuyers looking to enter the housing market.
Mortgage rates rose by more than a full percentage point in September. Freddie Mac reports the 30-year fixed mortgage rate increased to 6.7% from 5.66% during the first week of September.
As a result, homebuying is 12% more expensive now than just a month ago, meaning current buyers need to spend about $250 more every month to buy a median-priced home compared to buyers who purchased their home a month ago.
Unfortunately, this increase means many folks looking to buy are being left out in the cold.
These fast-rising rates have slowed down the housing market, and as we head into the last quarter of the year, activity might decline even further.
Every year, transactions and prices tend to be above-trend in the summer, while activity typically slows in the fall and winter. The impact of seasonality is vital to the housing market since it affects housing demand and supply.
Specifically, the fourth quarter is typically one of the slowest quarters for home sales, nationally representing 24% of the total activity throughout the year. Compared to the third quarter, activity typically drops by 15 percentage points in the last quarter of the year.
National Association of Realtors Chief Economist Lawrence Yun says he expects the economy will remain sluggish throughout the remainder of this year, with mortgage rates rising to close to 7% in the coming months.
“Only when inflation calms down will we see mortgage rates begin to steady,” says Yun.
As a result of the current interest rate environment and weaker economic activity, the NAR expects existing home sales in the U.S. to decline 15.2% in 2022 to 5.19 million units, while new home sales are projected to fall by 20.9%.
To measure this activity, the NAR utilizes the Pending Home Sales Index, a leading indicator for the housing sector based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The Northeast PHSI decreased 3.4% from last month to 76.6, down 19.0% from August 2021. The Midwest index fell 5.2% to 88.4 in August, a 21.1% drop from the previous year. The South PHSI slid 0.9% to 105.4 in August, a decline of 24.2% from a year ago. The West index rose by 1.4% in August to 71, down 31.3% from August 2021.
“Home prices are the least affordable in the West and, consequently, the region suffered deeper annual declines in contract signings due to rising interest rates when compared to other areas of the country,” Yun adds. “However, the recent increases of the last two months, though small, are encouraging.”
What are we seeing in the local market? A quick look at the numbers breaks down like this: 908 homes closed in the last 30 days on our MLS, 638 homes went under contract and 1,785 homes are currently on the market.
The inventory of listings has grown over the past few months, and while interest rates are impacting many the purchasing power of many buyers, our local market is still showing signs of strength.
Of course, given what’s being reported nationally and in other regional areas, we’re monitoring for signs of similar changes locally. We’ll be reviewing the official numbers from last month in the coming week and I’ll be providing a statistical look at the changes we’re seeing from previous months, as well as an update on the changes since a year ago, in my next column.
As Realtors, it’s our responsibility to help guide homeowners and sellers in a fast-changing market. Look to those who have the expertise to help you, as a buyer or seller, get the most out of your most valuable investment.
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Founded in 1912, Greater Chattanooga Realtors is a regional organization with more than 2,500 members servicing Hamilton and Sequatchie counties in southeast Tennessee and Catoosa, Dade and Walker counties in northwest Georgia. The association is one of approximately 1,100 local associations and boards of Realtors nationwide that comprise the National Association of Realtors. Greater Chattanooga Realtors owns and operates a multiple listing service that’s one of approximately 600 MLSs in the country and services more than 2,700 users.