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Rising Rates and Home Values Part 2

Rising Rates and Home Values Part 2

Shannon Gray – Thursday, June 28, 2018

As Charles Dickens famously wrote, “It was the best of times. It was the worst of times.” If you are a homeowner today, “the best of times” rings true since your home has probably appreciated in value and you most likely have a fantastic interest rate at an historic low. If you are looking to buy a home, however, (especially in the entry level and/or mid-tier level), maybe “the worst of times” fits your situation. Home prices continue to shoot up, along with mortgage interest rates. The task of finding a suitable home with limited inventory is challenging.

So will the market continue to appreciate? Will we see price declines or at least see the price appreciation slow or stop? Apparently not anytime soon according to the predictor of the last Housing Crash, Christopher Thornberg, who does not anticipate price declines unless there is a recession.There has been a slight shift in the market, though. While CoreLogic reported the number of sales in Southern California were 3.4% lower than a year ago due to decreased supply, we have seen supply increasing the last few months. Orange County real estate economist, Steven Thomas, shows the slight market change in his most recent report. The active listing inventory in Orange County is up 3% as compared to this time last year and demand is 8% lower than last year. Perhaps the decreased affordability is putting some fatigue on buyers.

What about the climb in mortgage interest rates and their impact on the real estate market? Mortgage interest rates are close to their highest level in seven years. Rates have risen more than .5% since the beginning of the year and Freddie Mac’s economists and analysts predict they will increase another .5% by the end of the year. In their June Outlook, mortgage rates were predicted to average 4.9% by the fourth quarter of this year and 5.4% by the fourth quarter of 2019. Monthly mortgage payments are up nearly 13% from a year ago due to an increase in home prices and higher interest rates, according to Realtor.com. Wage growth is not keeping up with these increases, but decreased affordability has yet to have a meaningful impact on the real estate market. On a national level, Freddie Mac is predicting 5.1% appreciation for 2018. Arch Mortgage Insurance who analyzes market conditions throughout the nation projects only an 8% chance of home prices declining in Orange County over the next 2 years, and they rank Los Angeles and the Inland Empire at an even lower chance of 2%.

Even with rising interest rates, a challenging real estate market and a slightly shifting market, it still looks to be a relatively safe time to buy.

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