Rising mortgage rates have yet to slow down home price increases

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Experts say there are still more buyers than homes for sale

The average 30-year fixed-rate mortgage continues to climb above 5% making it more difficult for buyers to qualify for loans at current prices. In its latest update, Freddie Mac set the average interest rate on that popular mortgage at 5.27%. Five months ago it was around 3%.

But Michael Gifford, CEO & co-founder of Splitero, a home-seller resource, doesn’t expect to see a price dip – at least not in the near term.

“The real estate market is starving for inventory and has significant pent-up demand,” Gifford told ConsumerAffairs. “We are unlikely to see home price appreciation slow with a single factor like interest rates. Inflation, affordability, interest rates, supply, and other factors will likely need to combine over the course of the year to stop rising prices.”

Gifford says his company operates in many markets where homes are still selling within days or even hours of going on the market.

No slowdown

The National Association of Realtors (NAR) recently issued a report that suggests there hasn’t been much of a slowdown in rising prices so far this year. The report found that 70% of 185 measured metros experienced double-digit price gains in the first quarter, up from 66% in the fourth quarter of 2021.

Tom LaSalvia, the senior economist at Moody’s Analytics, says demand for homes, even at a higher mortgage rate, may actually be increasing because rates are going up. He says it can create a “fear of missing out” mindset.

“This only intensifies in an environment when interest rates are expected to rise -- buyers want to get something before their rate lock expires,” he told us. “While many of these purchases work out, some will lead to regret. There is already anecdotal and survey evidence of this during this moment in time.”

On the other hand, LaSalvia says some people will look at rising rates and the resulting higher monthly house payments and decide to put off their purchase, cooling down the red-hot housing market.

But some markets are seeing price cuts

Mayer Dallal, the managing director of mortgage lender MBANC, says his company is already seeing price reductions in New York, Los Angeles, Dallas, and some other major housing markets. That, he says, could be an opportunity for savvy buyers.

“Sellers know mortgage rates are rising, which might scare off buyers, but they still want to sell, so they're willing to compromise,” Dallal said. “Remember, asking prices aren't based on any scientific instruments. It's often about perception. If your neighbor got a high, over-asking-price offer during the height of the frenzy, then you might ask for a similar price -- not because that price reflects any objective reality.”

Dallal says the housing market is cooling from the peak frenzy of a few months ago and an economic slowdown could give buyers a little more bargaining power.

If you'd like to learn more about all the factors that determine how mortgage rates are calculated, check out ConsumerAffairs' resource here.

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