Mortgage Interest Rates are at the highest level since 2008

mortgage interest rates highest since 2008

What does this mean for Buyers? What does this mean for sellers? What does this mean for current homeowners and their property values?

We’re constantly seeing it in the news… the Fed raising the short-term rate to combat inflation. Is it working? Well, it looked like it was for a second. But then we seem to be getting worse-than-expected inflation news. The news forces the Fed’s hands in increasing rates, to slow down the economy, bring prices down, and thus get inflation under control. The Fed rate is one of several items that factor into mortgage interest rates, but it’s safe to say this is one of the biggest reasons mortgage interest rates are at the highest point since 2008.

What does this mean for homebuyers?

With the rapid increase in home prices, an increase in interest rates really impacts the buyer’s affordability of homes. A $500,000 home loan costs buyers $1,261 more per month compared to last year! So you might be thinking, who would buy right now? Well, I’ll tell you! The patient buyers that are seeking out “good deals” are winning in this market. Not only are they negotiating prices BELOW where appraised values are coming in, but they’re also negotiating to have the sellers pay to buy down their mortgage interest rates. Buyers with a plan, knowing what monthly payment they’re most comfortable with, and knowing how much the sellers need to pay to get their rates down to comfortable levels are winning right now. Buyers have a few more options to choose from with less competition compared to this time last year. When rates come back down, which they will, how do you think the market is going to be for Buyers then? Have a plan and consider taking advantage now.

What does this mean for sellers?

A year ago, the close-to-list price ratio was 104%+. This means that sellers on average were getting at least 4% more than their asking price. Today, it’s about 96%. Yes, this means on average sellers are accepting offers about 4% lower than the asking price. However, this doesn’t mean prices are falling or crashing. In fact, homes are still selling at higher prices today compared to this time last year (year-over-year). We’re just not seeing 20+ offers and $100k+ over asking anymore. The way a home is presented, marketed, and priced is more important today than it has been in a very long time. If you are planning to sell your home, just throwing out a price and seeing if it’ll stick will no longer work. Those that are over-pricing their homes are actually selling them for almost 10% less. And in knowing buyers on average are coming in about 4% below asking, putting your home up for a low price (the auction model) probably won’t be your best option either. The asking price of your home as a seller should be what we call “Market Value” and you need to make sure you’re lined up with a Real Estate Team that excels in marketing.

What does this mean for homeowners and property values?

Try not to go crazy checking Zillow’s “Zestimates” every day. We’re starting to see a plateau, but we are not seeing a crash by any means. In Orange County, we’re still drastically under-supplied and we don’t see that changing any time soon. Real Estate also tends to follow the unemployment rate, which is strong nationally, but Orange County’s unemployment rate is even lower than the national rate. When the Real Estate market crashed in 08-09, those areas with the highest unemployment rates were hit even harder than the national average. If supply doesn’t change and the labor market remains strong in Orange County, I do not see home values plummeting. They may plateau or correct by 4-5%, coming off of historical highs. But here in Orange County, we’ve seen 30%+ gains over the past couple of years, so even if prices correct by 5%, homeowners will still enjoy 25%+ on 3-year gains. Watch out for second home markets… those are going to be areas that may feel the impact of higher interest rates as there’s not much of an incentive to be buying vacation homes right now. There are many would-be and highly qualified homebuyers that are on the sidelines right now waiting to see what’s going to happen with prices and rates… once rates come back down again, they are going to race back into the market and we may feel a short-term jolt that we felt right after the Covid lockdowns.


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