The mortgage rates are constantly rising, and it has seen an all-time high in the past years. According to Bankrate's reports, the current mortgage rates in America are standing at 6%. It was at 5.78% the last week and 5.36% the week before that.
Though the rates were meager during the beginning of the pandemic and even at the start of 2022, the picture is not so great right now. According to the CNBC news reports, in 2020, it was at a record low of only 3%, which helped in driving up real estate sales and boosted this volatile industry amidst the looming pandemic. It stayed at around 3.33% till the beginning of 2022 and helped the real estate industry recover from the pandemic blues.
The interest rates are at 6% and it is the highest since the 2008 recession period. Based on Mortgage Rate reports, this number could go up to 7% by the end of 2022 and negatively impact house sales in America. What does this mean for your business?
How does it affect buyers and sellers, and how do you stay afloat and relevant in business in this ever-changing market? Our team at Assetsoft has conducted careful research on the subject to help you understand everything about the rising mortgage rates and what it means for the real estate biz.
Why are Mortgage Rates Rising?
There are multiple reasons for this sudden rise in the mortgage rates after a record two-year low rate period. What are they?
The rising inflation is due to multiple world events like the Russia-Ukraine crisis and the pandemic situation which has been on for the third year now. To control inflation, the Fed had to increase its interest rates. The Fed also hiked its interest rates which made the mortgage rates rise further up. As the inflation rates are rising, there hardly seems to be any chance for the interest rates or the mortgage rates to go down any time soon.
How does it affect home buyers?
Rising mortgage rates means that homebuyers cannot afford to buy homes as easily as before. Customers who went for a second home as an investment or holiday space are now retracting and rethinking their steps before investing. World News reports research reports also say that the increasing mortgage rates also affect the buyers buying capacities. It reduces their buying capacity by at least 9 - 11%.
According to Global News Wire news reports on NAR research, the home sale rates dropped by 7.2% in March 2022. That was a much higher number than anticipated due to the rising mortgage rate. This means that most of the predictions that the experts have made have not worked due to unpredictable situations.
Each major region saw a fall in home sales, and real estate businesses took the hit. The people who were bordering on getting qualified to buy a home in America are now being pushed out of the market due to the sudden rise in mortgage rates.
The average rate for mortgage applications also went down significantly. It saw a steep downward decline of 17% from the starting of 2022 to date.
The Mortgage Bankers Association published this data in comparison with the mortgage application rates of the same time from the last year 2021. According to the Business weekly’s reports, this is the lowest level of mortgage activity since 2018 and predictions say these rates are going to reduce at these alarming rates for a long time now.
How does it affect home sellers?
When interest rates and mortgage rates go up, housing affordability decreases, eventually pushing down sales. What does it mean for the house sellers? This means that their buyers will probably not be able to give the offered price on houses.
Sellers might have to rethink their prices and even cut down on the asking price to make sales go through. If the market stabilizes soon, which is highly unlikely, then the asking prices might be affordable for buyers; otherwise, it will not work.
According to The Washington Post news reports, active listings of new and old homes for sale also went down in April this year by 19% compared to the number of listings in April 2021. So, what happened to the listed homes? Sellers pulled back; they are planning their strategies and waiting for the market to become less volatile before they sell. But luckily for sellers, there are other factors at play in the market. People who are coming back to the city to join work after remote work schemes were lifted are demanding new homes, and there is an inevitable sale growth from that. But the number is not huge, it might help sellers survive, but it will not be a massive win for anybody until mortgages go down.
What does it mean for your real estate biz?
Without proper management plans, there can be many unforeseen pitfalls along the way for any real estate business owner or manager. Your business might see fewer sales due to the low mortgage rates, but you also have to tap into other markets to stay afloat during turbulent times.
Property rentals and multi-family unit tenants are coming back into town, and you need to cater to this market before losing heart over increasing mortgage rates.
Planning Strategy and Leadership to Tide Through a Changing Market
It is a critical time for business, and the economies are just getting back to normal when the inflation started soaring. Do not add bad strategy and leadership to this deadly cocktail and make your business crash. Get outsourced help from Assetsoft if it is a burden for you to hire a full-time strategy and leadership team for project management. We will plan the best route for your business and help you keep up with all market trends, and even then, our services will be much cheaper than hiring an in-house team.
Talk to us today to find out more about our services!