The Federal Reserve raised its interest rates on Jun 15 by 0.75 percentage points, following a 0.5 percentage increase in the beginning of May. Though the move was being somewhat anticipated by the mortgage and housing market, its effects of it were far from estimated. This rise in interest rates comes right after the pandemic the the second time this year.
The rise before the interest hike in May was in March, and the rise before that was nearly four years back, just before the pandemic in 2018. According to the Bankrate reports, the Federal Reserve has raised its interest rates by a quarter and is planning to make six more raises this year itself. This comes as a big blow to the real estate industry because borrowing money from banks just got costlier, and which American can buy a house without a mortgage?
The interest rates will affect the housing market in more ways than one and will affect your real estate sales as collateral. What are these effects, and how does it affect your business? How do you steer this new and sudden development and stay relevant in the market? Well, we answer all these questions and more in this blog. Read on to find out more about it.
Why did the Fed raise its interest rates?
The Federal Reserve is raising its interest rates to stay in control of the rising inflation across the globe. This is the second rise this year and one of the significant factors affecting these decisions is due to the volatile situation around the Russia-Ukraine crisis and the constantly rebounding coronavirus pandemic.
The ripple effects it is adversely affecting all aspects of American lives, but the housing market is grilling under extra pressure. The housing market and also the Commercial Real Estate markets had already taken major hits during the pandemic when most economic transactions shut down. When the market was slowly rising up, and the real estate market was getting back up on its feet, this rise in the Fed interest rate came as another blow.
Furthermore, NPR market reports say that the Fed rates are the highest it has ever been in the last 20 years, and it is set to rise to 2% by the end of this year. The market predictions also believe that the rates will rise above 3% by the end of 2023.
What does it mean for the housing market?
But does this rise dampen your real estate business? It might do that as a primary effect, but you have to plan your strategy and leadership so that you can steer through this and still drive sales. Understand what this means for the housing market, and then rethink your property management and real estate sales strategies to impact your ROI positively.
The effect on mortgage rates
Though the Federal Reserve directly does not increase the mortgage rates, any talk or decision by them directly affects the mortgage rates. So, at the beginning of 2022, when the Fed had not even announced any hike in interest rates, the mortgage rates had already shot up. Fortune news reports on an analysis by expert economists say that if the Fed keeps increasing its interest rates at this pace, the mortgage rate can shoot up to 5% by the end of 2022.
In ripple effect, how do the mortgage rates affect the housing market?
The mortgage rate rise directly affects the demand for housing. That is why the all-time low mortgage during the pandemic saw a major boom in sales in 2020 and 2021. In December 2021, the mortgage rates were at an all-time low at 3.1%, which encouraged many homebuyers to even aim for a second home. Within a few months, the interest rate shot up to 5.27% in the first week of May. It is the highest rate since 2009; housing is becoming more unaffordable for the average masses and is making many people roll back on their immediate real estate plans.
How can you stay ahead of the curve?
As Bankrate’s experts say, the housing market has many more factors affecting its graph than just the Fed rates, so it is hard to completely predict the housing market's future for now. In the near future, the rising interest rates are definitely a problem for both homebuyers and sellers, which means terrible business for real estate companies.
But you have to offer something extra and exclusive to your potential customers to make positive sales. Here’s all that you can potentially offer.
Sustainable housing options to help your customers see a long-term future investment in the homes than just the short-term money burden.
Start thinking about smart homes to ease your homebuyers' lives and hit the right chord with them. Investing money in developing smart homes will definitely drive your sales because the new-age homebuyers are very high on good technology use inside their homes.
Builder news reports say that millennials are ready to pay as much as 20% extra to buy or rent homes with smart technology to ease their daily lives. You need to tap into this booming market to impact your sales.
Due to the rise of remote work in the post-pandemic scene, there is a rising demand for open spaces and leisure activities inside multi-family homes. You can rethink your house plans and add more options for open spaces to attract these stay-at-home working crowd and make sales. Providing these extra facilities will incentivize your potential homebuyers to move forward with their deals.
Key Takeaways
The rise in interest rates has directly affected the rise in mortgage rates for housing. It has been at an all-time high since 2009, adversely affecting all real estate businesses. Though this development is pretty new and the actual effects are yet to be felt, an inevitable dip in sales has already been noticed. This came right after the sudden boom in the real estate biz when the mortgage rates dipped due to the pandemic in 2020 and 2021.
But do not let this sudden change negatively impact your business. We are here to offer our help during these challenging times in business. The Assetsoft team can provide you with expert strategy and leadership advice and help your business grow. Our team is always updated about the latest developments in the industry, and we are here to chalk out a practical growth plan for your business.