Will Rising Interest Rates Affect Demand for Housing?

3/13/2022

Interest rates on a 30-year mortgage are expected to increase, which may affect how many investors buy up real estate deals. Could that presage more housing on the market and lower prices? Dan Korman, owner broker with Alpenglow Properties, looks at what past trends may predict.

Hi there. I'm excited to share some of the year's real estate revelations with you on this month's episode of The Real Estate Update. Interest rates topped 4% for the first time in a while and uncertainty abroad is wreaking havoc on markets but the Durango real estate market remains a seller's market with tight home supply and continuously soaring prices. Let's get into it. It's March 3rd, 2022 and the La Plata county real estate market is chugging right along the same way it has been for the last two years or so. Shockingly, there are only seven single family homes listed on the MLS right now and that's within the Durango city limits. There's 64 homes available when you look countywide. When you add in condos, townhomes, and other improved residential properties, that takes the total up to 114 properties for sale. Inventory is low, but the good news is that there is mathematical evidence of relief by way of fresh supply in the not too distant future. When you look at historic new listings by month since 2009, you'll notice a very steady seasonal oscillation with the most new listings hitting the market in May or June each year and the lowest numbers falling in November and December. Here's where we are today and the statistics are pointing to an influx of new inventory over the next few months. So if you're one of those folks refreshing your Zillow feed every 15 seconds, fear not, as the data dictates that more homes will indeed hit the market in the next few months. Let's remain cautiously optimistic and check in next month to see if the trend line is keeping track with my assumptions. Active listings are about half of what they were at the end of February last year and down a whopping 80% from the 2020 due to persistent demand. But a few things are happening that may help quell that demand a little bit. High prices have caused some buyers to give up their home search altogether. Though buyer clients working with us here at Alpenglow continue to find those hidden gems within their budget. An increase in interest rates is also a factor contributing to a change in demand. Interest rates crept up over the 4% mark, then dipped back down, and has yet again risen over the 4% mark, all in the beginning of this year. Rumor has it that the Fed wants to increase rates by a quarter of a point five times this year, which could put 30-year fixed rate mortgages around 5% by the year's end. For context, in October of 1981, the 30-year fixed rate was 18.75%. That's a mind boggling number. In 1990, rates were around 10%, and in 2000, it hovered between 7% and 8%. Then from there, in early aughts through 2020, it floated between 3% and 5% and finally dipped below 3% in 2020, and again last year. Due to this recent all but free money, creditworthy investors have been able to come in with strong financial backing and swoop up homes en masse which has helped to create a much more competitive market for the average home buyer and renters alike. Anyone looking to buy their first home, move up, or downsize within the same market has met headwinds on achieving their goals, but with interest rates on the rise, that could create a little more space for the normal buyer to get in without having to fight the investors. Only time will tell and I am keeping an eye on the inventory rates and macro effects of our market daily. Unfortunately, that's all the time we have on this month's episode of The Real Estate Update. Please click subscribe below and hit that light button for the algorithm. As always, you can reach me via email at dan@alpenglowproperties.com or on any of our social media pages @DurangoBrokers. Be sure to smile and say, "Hi," to a stranger today. You never know how that can positively affect another's outlook. Thank you for watching and see you next time.

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