It did not take long for home sellers to catch on to the record low mortgage rates we have been experiencing. These rates have sent home buyers into a tizzy and on the hunt for a house – and fast.
Due to this phenomenon, sellers can price their homes higher to snag buyers who are trying to secure a low-interest rate. Let’s explore all of this in a little more detail:
How much are prices going up
Realtors around the nation are reporting price hikes in the double digits.
In fact, prices were 12.2% higher than they were a year earlier for the week ending Oct. 10, according to Realtor.com® data.
It is not an uncommon situation to see a house sold the day it goes on the market for above asking price.
Even the experts are stumped. Freddie Mac’s chief economist, Sam Khater, says “It’s unprecedented for us to get a massive run-up in home prices during a recession. It’s clear that [mortgage] rates matter even more than unemployment rates”.
However, that does not mean you are necessarily paying more. Affordability plays a factor and since monthly payments are lower with these new low interest rates, the greater debt taken on levels out.
How low are we talking?
A year ago, mortgage rates were averaging in the 3.5%-4% range. According to Freddie Mac, they fell to a new all-time low of 2.81% in the week ending Oct. 15.
This could easily mean a difference of $80 a month on a median-priced home.
However, these low mortgage rates are not predicted to last forever.
The rise and fall
Now you may be wondering, when mortgage rates rise again, will home prices fall?
The first thing that will happen when rates go up is that demand will go down.
Many potential homebuyers will be out of the running and unable to afford a mortgage.
The experts predict home prices to flatten out, but slowly.
Freddie Mac’s Khater says, “Any time you get these quick run-ups in prices, there’s usually a hangover afterward. There’s a softening in price acceleration.”
If you’d like to read a bit more about the current state of our Real Estate market, we’ve got you covered!
Find out more about rising home prices and bidding wars here.