Will The Rise Mortgage Interest Rates Burst the Housing Bubble?
Ahead of the Federal Reserve Bank’s announcement in March to raise mortgage interest rates, banks have raised the historically low 30 year fixed interest rates to 3.76% this month (February, 2022). This is the highest mortgage rates have been since 2020.
Although mortgage interest rates are still at historically low levels, home buyers have been able to purchase homes with monthly payments basically the same as rent payments, making bidding wars common place. Housing affordability remains a challenge for many buyers who are not only dealing with higher prices of goods & services, but high prices in food products and energy prices through an inflationary trend.
Thankfully, once again The Federal Reserve Bank has a “solution” to slow the increase in real estate prices: higher interest rates.
According to Frank Nothaf, Executive Chief -Economist at Corelogic: “With the Federal Reserve gradually “tapering” its supportive monetary policy, mortgage rates should slowly rise in the coming year: look for mortgage rates to average about one-half of a percentage point higher in 2022 than they were in 2021, or about 3.4%. We expect to see a moderation in buyer demand as the erosion in affordability takes a toll, and additional for-sale inventory to come on the market. With more supply from new construction and existing owners relocating, home sales are expected to rise to the largest number since 2006.”
Conclusion
Ahead of the Fed’s announcement on the increase of mortgage interest rates. Banks have already made their move and have increased 30 year-fixed mortgage interest rate to 3.76% on February 2022, which it’s the highest since 2020. Housing affordability challenges due to high demand and bidding wars coupled with an inflationary period have prompted the Fed to come up with a “solution,” which involves manipulating once again monetary policy in order to slow down the rising housing prices and make homes affordable for home buyers. As a result we can expect to see moderate demand and additional inventory to come on the market.
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