It’s no secret, mortgage interest rates are up three quarters of a percent since the election in November. I’ve been getting a lot of questions from home buyers and home sellers as to how this will impact their ability to buy a home and the value of the home they want to sell. These questions come on the heels of extended periods of low interest rates that hovered around 3.5% for portions of 2016. Everyone knew that interest rates could not and would not stay at historic lows forever but this sudden jump in roughly a month’s time has caused some worry.
The answer to these questions, I believe, are very area specific. If we look at the market in the Philadelphia area, we have been largely in a seller’s market for the last few years. This is due to low inventory and rising home prices north of 5% year over year growth. Homes have been flying off the shelves with most updated homes in desirable areas receiving multiple offers in the first weekend.
Are rising interest rates going to affect the current balance of the market and home prices? Let’s dive into it.
Home buyers are obviously affected by rising interest rates since it will impact their mortgage payments thus buying power. The real question is, are home buyers going to pay the same price for a home in 2017 as they would have in 2016 when rates were almost full percent lower? Yes. Due to the seller’s market we have been in, I don’t think rising interest rates will affect most of the area’s home values. Historically, there has been little correlation to interest rates and home values.
With that being said, there are definitely areas where inventory has been healthy that will see home values level off. The most susceptible areas are those where the taxes are high and demand has been balanced between sellers and buyers. Most economists are calling for home prices to continue to rise at least several percent in 2017 while factoring in higher rates. I think that is really going to be contingent on where interest rates end up once we get in to the spring market. If interest rates creep towards 5%, I think the conversation will change and seller’s may see a short term impact to their home’s value due to the lower buying power of those actively looking for a home. It’s a seller’s market for now but just like interest rates, it can’t stay the same forever.
Pay attention to the first few months of the year and monitor the sales in your local area to see where comps are coming in at. If you would like an in-depth market analysis of your home please contact me and I would be glad to help.