After two years of home sellers enjoying prospective buyers lined up and eager to buy at nearly any price, home sales are finally cooling off.
The reason? Rising interest rates have made owning a home less affordable, pushing some buyers out of the marketplace altogether. And it's all happening rather quickly.
The Largest Rate Increase in 28 years
Since January, the interest rate on a 30-year-fixed mortgage has risen to almost 6 percent, from just above 3 percent at the beginning of the year. That means, for someone buying a $450,000 home, their monthly mortgage cost has risen about $700 solely due to interest. For many buyers, that kind of increase isn't manageable. For many more, home ownership isn't as tempting as it once was.
Federal interest rates rose three-quarters of a percent in June alone, the largest increase since 1994. Officials have also indicated that another increase is likely to come this summer. Each time the Federal Reserve raises interest rates, the rates for other big-ticket items like mortgages and auto loans go up, too. And each time the interest rates go up, the number of prospective buyers goes down – which is exactly the point.
Home prices are still at record levels, but sales are already beginning to decline in response to rising interest rates. From April to May of this year, sales of existing homes fell 3.4 percent, and builders are reporting a similar decrease in new home construction.
Drastic Steps to Slow Inflation
The Federal Reserve keeps raising rates to cool off what many have described as a too-hot economy, with inflation climbing faster than the marketplace can handle. The Fed's plan seems to be working, but that means the two-year golden period for home sellers to get unfathomable amounts for their homes has probably ended. That means buyers willing to pay significantly higher interest rates should have an easier time finding a home.
The housing market is changing fast, and no one is quite sure what will happen next. It's never been more important to have advice from someone like Attorney Melvin Monachan, who understands New York real estate law and who can advise you on how to protect your interests. Contact our office online or call us today at (347) 389-1682.