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Inflation, Interest Rates & More

May 23, 2022 | Interest Rates, Kevin Coyle

There’s a lot of volatility in the world right now, on so many levels.  The rate of inflation in the U.S. has gone from 2.6% in March 2021 to 8.3% in April 2022, down slightly from 8.5% in March 2022, which was the highest it’s been in forty years.

We’re all seeing this inflation at the gas pump, the grocery store, at restaurants, when paying rent, and when buying homes and financing them.

Interest rates continue to rise with the average 30-year fixed-rate mortgage at 5.3%, the highest it’s been since 2009, but still far below the historical average 30-year mortgage rate of about 8%.  The graph below looks at 50 years of mortgage rate history and puts it in perspective.

The Federal Reserve raised its benchmark rate by 0.5% on Wednesday May 4th, and Federal Reserve Chairman Jerome Powell said that they are considering two more 0.5% rate hikes in June and July to try to rein inflation in.

The Federal Reserve hasn’t increased the benchmark rate by 0.5% since the year 2000, so this is a major change in their monetary policy.

Historically interest rates are still pretty low, but with home prices at all time highs, the higher rates are starting to effect the local real estate market.

Inventory of single family homes in Salt Lake County has steadily increased from a record low of 230 homes for sale on February 1, 2022, to 823 homes for sale today.  Last year at this time there were 500 homes for sale, and the only time last year that there were more homes for sale than right now was on August 31, 2021, when there were 872 homes for sale.

Inventory of condos and townhomes in Salt Lake County has increased from 85 units for sale on February 1, 2022, to 247 units for sale today, which is the highest inventory we’ve seen since November 18, 2021.

This trend has softened the market slightly in some areas and price ranges, but the market is still a seller’s market.  The two homes I listed for sale in February and March had about 20 offers on them.  The last three homes I listed since then have one to four offers on them, but those homes were higher priced homes, so there are fewer buyers that can afford them.  All five of these homes went under contract in three to five days.

We’ve had a major housing shortage for a couple years now.  I’d estimate that the market would flatten out once we reach 1,500 homes for sale based on what I’ve seen over the years, but it’s hard to say for sure, and we’ll see if inventory reaches that level.

I’ve been thinking about what changes we might see in the local housing market if inventory continues to increase.

There have been a lot of people who own a home who haven’t had an opportunity to move because they need to sell their current home in order to buy another.  The market has been so hot that sellers haven’t needed to consider an offer contingent upon the sale of a buyer’s home.

That might change if inventory continues to rise, and then the homes those buyers live in will likely get listed for sale, which frees up more housing inventory.

There has also been a lot of buyers who are still renting because they couldn’t compete in bidding wars due to having limited funds for their down payment and the inability to overcome a low appraisal.

Interest rates are higher now, so some may be priced out, but if they have the income and credit to qualify for the loan, the market will be less competitive as inventory rises.

Also, as interest rates continue to rise, it will be harder for investors who have to borrow money in order to buy, to make the numbers cash flow on some properties.  This could reduce the number of investors in the market.

Whatever occurs, it will be interesting to see what happens next, and I’ll be monitoring the situation and keeping you informed on our local housing market.

If you or someone you know has any questions about buying or selling real estate or if you’re wondering what your home is worth, I’d love to hear from you!

Thank you for your repeat business and your referrals!!!

Kev

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