If you’re in the market for a house in the United States, then you’ve noticed how expensive they are. Over the past two years, housing prices have soared as Americans take advantage of record low mortgage rates. According to the National Association of Realtors, the price of an existing home increased from around $275,000 at the end of 2019 to $358,000 in December 2021–a whopping 30% increase.
The Federal Reserve has lately indicated that it will raise interest rates in order to combat the higher-than-expected inflation. As a result, mortgage rates have risen. According to Freddie Mac, the average 30-year fixed mortgage rate increased from 2.98% in November to 3.55% in January.
Higher mortgage rates should, in theory, help to calm the housing market by making housing more expensive. However, like all other market prices, housing prices are subject to the law of supply and demand.
In December, there were just 790,000 existing single-family homes for sale, the lowest amount recorded. With such a low supply of homes, there is a shortage. And when there is a shortage, prices will increase. All of this means housing is expensive, in low supply and could get more expensive soon, despite increased mortgage rates.
When will the housing market start to cool off? Housing prices could fall when supply and demand start to balance out, but experts don’t think this will happen in 2022. Do you agree or do you think as the Fed raises interest rates, housing prices will fall?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.