There are many things buyers and sellers should consider when looking to buy or sell a home. Location, why you want to buy or sell, and help you along your journey are some examples. When it comes to today’s real estate market, the top two factors to consider include Interest Rates and Inventory.
Interest Rates in Today’s Real Estate Market
Mortgage interest rates are rising and are now over 3/4 of a percentage point higher than they were at the beginning of the year. According to Freddie Mac’s latest Primary Mortgage Market Survey, rates climbed to 4.72% for a 30-year fixed rate mortgage just last week.
When trying to figure out your monthly costs estimate, the interest rate you secure when buying a home will impact your monthly housing costs and your purchasing power. Purchasing power is the amount of home you can afford to buy. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.
Keep in mind that each quarter of a percent will increase the interest rate, and the value of the home you can afford decreases by 2.5%. Some industry experts have predicted that mortgage rates will be over 5% by this time next year.
Inventory in Today’s Real Estate Market
What most people consider a normal real estate market usually requires there to be a 6-month supply of homes for sale in order for prices to increase with inflation. According to the National Association of Realtors (NAR), listing inventory is currently at a 4.3-month supply, which has put more pressure on the prices of homes. The prices have increased year over year for the last 6 1/2 years.
Inventory for sale in the real estate market has been on a steady decline and experienced year-over-year drops for 36 straight months starting from July 2015 to May 2018, but we are seeing a change in inventory over the past three months.
When discussing the change in housing supply over the last 12 months, inventory levels have started to increase as compared to the same time last year. This is a trend to watch as we transition into the fall and winter seasons. If we continue to see an increase in homes for sale, we could start moving further away from a seller’s market and closer to a normal market. If you are planning to enter the market as a buyer or a seller, you should discuss the changes in mortgage interest rates and inventory with a realtor today.
How has Interest Rates and Inventory affected you in the past? Do you think we are heading into a normal market? Let us know in the comments below!