The average mortgage rate is at a seven-year high. Is this what’s behind the shift we’re seeing in the market?
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The 30-year fixed mortgage rate currently stands at around 4.77%. That’s near a seven-year high, and almost 1% higher than just a year ago. This is the result of a steady rise starting last September and ending this May.
What impact is this having on the real estate market? It’s certainly true that affordability is down. In fact, one estimate from June found that home affordability is at a 10-year low. This is translating into fewer home sales, fewer viewings, and fewer mortgage applications.
However, I don’t believe that the shifts in the mortgage rate is the primary mover of the changes we’re seeing in the real estate market. In fact, even at its current level, the mortgage rate is still historically low.
Instead, the big reason for the changes in the real estate market is the ongoing growth in prices. Over the past several years, home prices have gone up at close to twice the rate of inflation, and have far outstripped the growth of incomes.
The price increases, in turn, have been caused by a lack of inventory, which has been shrinking for the past three years. In my opinion, it’s this lack of inventory (and the resulting hike in prices) that explains most of the effects on the real estate market that I listed above.
If you’re looking to sell, you should still have no trouble doing so. Demand continues to outstrip supply, and even with dropping affordability, it’s very likely that you would find a buyer quickly and at a top price.
If you’re looking to buy, the picture is more complex, because it’s so hard to predict what the mortgage rate might do in the near term. One thing we do know is that the severe lack of inventory is unlikely to change any time soon.
As always, if you have questions about the Greater Phoenix real estate market, whether you’re buying or selling, you can give me a call or send me an email. I’m here to help.