Derek English: Rising Mortgage Rates Starting To Slow Housing Market

  • Thursday, October 6, 2022
  • Derek English, President, Greater Chattanooga Realtors
There’s no denying that interest rates have been climbing as the temperature outside has fallen. And just like being surprised when stepping out on a brisk fall morning, these higher rates are shocking to many homebuyers looking to enter the housing market.

Mortgage rates rose by more than a full percentage point in September. According to Freddie Mac, the 30-year fixed mortgage rate increased to 6.7 percent from 5.66 percent in the first week of September. As a result, home buying is 12 percent more expensive now than just a month ago, meaning current buyers need to spend about $250 more every month to buy a median-priced home compared to buyers who purchased their home a month ago.
Unfortunately, this increase means that many folks looking to buy are being left out in the cold.

Because of these fast-rising rates, the housing market has slowed down. However, as we head into the last quarter of the year, activity may decline even further. Every year, transactions and prices tend to be above-trend in the summer, while activity typically slows down in the fall and winter. The impact of seasonality is vital to the housing market since it affects housing demand and supply. Specifically, the fourth quarter is typically one of the slowest quarters for home sales, nationally representing 24 percent of the total activity throughout the year. Compared to the third quarter, activity typically drops by 15 percentage points in the last quarter of the year. 

So, what do the experts say? National Association of Realtors Chief Economist Lawrence Yun expects the economy will remain sluggish throughout the remainder of this year, with mortgage rates rising to close to 7 percent in the coming months. “Only when inflation calms down will we see mortgage rates begin to steady,” said Mr. Yun. As a result of the current interest rate environment and weaker economic activity, NAR expects (on a national scale) existing-home sales to decline 15.2 percent in 2022 to 5.19 million units, while new home sales are projected to fall by 20.9 percent. But we’re already starting to see a slow down. 

To measure this activity, NAR utilizes the Pending Home Sales Index, a leading indicator for the housing sector based on pending sales of existing homes. A sale is listed as pending when the contract has been signed, but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The Northeast PHSI decreased 3.4 percent from last month to 76.6, down 19.0 percent from August 2021. The Midwest index fell 5.2 percent to 88.4 in August, a 21.1 percent drop from the previous year. The South PHSI slid 0.9 percent to 105.4 in August, a decline of 24.2 percent from a year ago. The West index rose by 1.4 percent in August to 71.0, down 31.3 percent from August 2021. 

“Home prices are the least affordable in the West and, consequently, the region suffered deeper annual declines in contract signings due to rising interest rates when compared to other areas of the country,” Mr. Yun added. “However, the recent increases of the last two months, though small, are encouraging.”

So, what are we seeing in the local market? Well, a quick look at the numbers breaks down like this, 908 homes closed in the last 30 days in our MLS, 638 homes went under contract and 1,785 homes are currently on the market. As realtors we monitor these numbers on a regular basis. The inventory of listings has grown over the past few months and while interest rates are impacting many buyer’s purchasing power, our local market is still showing signs of strength. Of course, with what is being reported on the national and in other regional areas, we are certainly monitoring the signs of similar changes locally. We will be reviewing the official numbers from last month in the coming week and I will be providing a statistical look at the changes we are seeing from previous months, as well as an update on the changes since a year ago in my next article. 

As realtors, it is our responsibility to help guide homeowners and sellers in a fast-changing market. Look to those who have the expertise to help you, as a buyer or seller, get the most out of your most valuable investment. Realtors work for their clients and community every day. That’s Who We R.
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