Wednesday, June 22, 2022
Mixed News
Posted By Babs De Lay on June 22, 2022, 4:00 AM
Financial news is all over the place right now. The Federal Reserve just raised its lending rates to big banks by 0.75%—the highest rate increase since the 1990s. This will trickle down to home mortgage rates and monthly payments almost instantly. It seems like just a year ago we had 30-year loan rates in the high 3% range and now they are up to 6%.
The housing market is very mortgage-rate sensitive, so as rates rise, demand for mortgages slows. There will be fewer buyers because they can't afford the higher rates. Sellers are already adjusting prices across the country and here in Utah.
Nationally, stats are showing a decrease in asking prices for homes—averaging a drop of 5%. Locally, we're seeing fewer people at open houses, fewer offers on listed properties (instead of 20, it's now more like five) and sellers being asked to pay closing costs, and actually doing so in some cases.
Some believe the Federal Reserve will be raising rates to cool inflation by up to 3 percentage points within a year. And some investors see a rise in rates as a signal to move toward broadening what they are buying, with many pivoting from real estate to scoop up stock-market investments.
The S&P 500 has dropped almost 25% since its highest peak in January of this year. And the Nasdaq is down almost 35%.
When there's a decline of more than 20%, it is indicative of a "bear" market, and it often portends a recession. A recession indicates a period of declining economic factors for several months. The president of Chase Bank recently predicted that we're heading into a "global economic hurricane"—which is obvious given the effects of the war in Ukraine, a slowdown in China's economy and extreme drought and poverty levels in Africa, let alone the ongoing supply chain issues worldwide.
But don't expect a housing "crash" like we saw between 2007 and 2009. Yes, there will be people losing their homes because, well, frankly they can't afford them in this economy of low pay and increasing prices on everything. The market will adjust, and Utah, with its strong economy, likely won't suffer as much as other states.
The flip side to bad financial news is that buyers who got out of the house-hunting market might now be finding better prices for homes and less competition. Sure, mortgage rates may be higher, but there are alternatives to 30-year fixed rate mortgages.
Fifteen-year mortgages are still under 3% fixed rate and adjustable ARMS are looking much better. Even FHA loans have become attractive again, so it's worth going back to your favorite lender and talking about finances and monthly payment options.
Homes were selling in six days or less for the last three quarters, but expect to see many languishing on the market now if sellers aren't pricing aggressively as a response to demand. This means buyers may be able to go back to a house they saw a week later and make a bid ... and possibly win a great home at a great price!
About The Author
Babs De Lay
A full-time broker/owner of Urban Utah Homes and Estates, Babs De Lay serves on the Salt Lake City Historic Landmark Commission. A writer and golfer, you'll find them working as a staff guardian at the Temple at Burning Man each year.
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