Mortgage rate hikes impacting buyers and sellers

COVID-19 has impacted real estate. From a large swath of individuals transitioning from in-office to remote work early on to mask mandates and social distancing, both individuals and businesses have made massive changes. Although many of the pandemic shifts have strained daily life, home buyers and sellers have reaped the benefit of low mortgage rates over the past two years, but all of that is rapidly changing.

“So many people were affected by the pandemic,” said Realtor Liz Venema of Venema Homes Real Estate Team. “The feds kept interest rates as low as possible, but it’s supposed to go up at least four times this year. The experts say they will try to keep it at 4.5 percent, but as of last week we have already hit that benchmark.”

According to Rocket Mortgage, mortgage rates have varied greatly over the past 50 years. In the early 1970s, rates were moderate, around 7 percent, but more than doubled to over 16 percent by 1981. Double-digit rates held throughout most of the 1990s, finally dipping below 7 percent 1998. The 2000s saw rates drop to under 6 percent, and the trend continued until January 2020 when a 30-year fixed rate was below 4 percent. But then the pandemic hit.

“The Federal Reserve dropped the federal funds rate to between 0 and .25 percent,” said Venema. “This caused other short-term and long-term rates to drop. This move was made to encourage borrowing on home loans, as well as other loans, and led to a large increase in refinance and mortgage applications.”

By the end of 2020, a 30-year fixed-rate mortgage was under 3 percent, and the rate has remained around 3 percent for the past year. However, with the rising cost of inflation and housing market in its current state, interest rates are climbing, which will impact both buyers and sellers and could possibly drive the shift from a seller’s market to a buyer’s market by end of the year.

“When housing inventory is low and interest rates are low, this makes for a seller’s market,” said Venema. “When interest rates go up and inventory goes up, buyers can afford less with a mortgage income rate to debt ratio. This limits them.”

Venema said buyers will need to be more cautious of any potential new home’s purchase price, as most buyers will ultimately qualify for less based on their principle, interest, taxes and insurance (PITI).

“If interest rates go up high, we could possibly switch from a seller’s market to a buyer’s market,” said Venema, adding that buyers should “be actively looking and not wait for houses to go down in price.”

“In the past 10 years, we haven’t really experienced a buyer’s market,” Venema said, explaining that when homes have stayed on the market longer, buyers have been able to ask for home repairs instead of purchasing “as-is,” like we have been experiencing for the past two years.

“The mastermind groups that I am involved with feel that our Tri-Valley will experience a flattening of home prices, not necessarily a drop,” she said. “2022 will be a really interesting year in real estate with the stock market dropping recently and inflation rising along with interest rates.”

Venema noted that she recently received 11 offers on a tract home with the winning bid currently pending at over $300,000 above the listing price with no contingencies and an “as-is” sale.

“While it’s entirely likely the red-hot East Bay market will remain ablaze at least for the first three-quarters of the year, the increase in mortgage rates could result in fewer buyers for homes,” said Venema. “It will be important for agents to guide their sellers to sell now if they are thinking of selling this year. If they’re going to sell and then purchase, sell now and purchase immediately or know where you are going to go. If you wait, you will be priced out of the market, like so many current buyers.”

Venema stressed that both buyers and sellers seek assistance from savvy Realtors.

“Find an agent you can trust to lead you, to partner with you. After all, selling a home, purchasing a home is most likely our largest investment.” she said. “Trust is very important on both sides.”

Venema said the average person moves three times – a starter home, a second home and final home.

“If you are a buyer, interview up to three agents to see who is a good fit; if you are a seller, think about how you feel around the agent. Do you want them in your house? Do they communicate well? Are they solution-oriented? Do they have lenders and vendors they can recommend?” Venema said.

“Do your homework and you will have a win-win experience.”

To learn more, connect with the team at Venema Homes online.