Will rising rates curb home buyer demand in 2022? (Podcast)

April 13, 2022 - 3 min read

What do rising rates mean for the housing market?

Mortgage rates have risen quickly in recent months. By late March, the average rate on a 30-year, fixed-rate loan was 4.67% — up from 3.22% at the start of the year.

Could higher rates mean less competition for hopeful homebuyers? Does it indicate a housing crash is on the horizon?

Mortgage expert Ivan Simental addressed both of these concerns in a recent episode of The Mortgage Reports Podcast. Here’s what he had to say.

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Are home prices going to come down?

Some would-be buyers are hopeful that, as interest rates rise, home prices will have to come down.

“The biggest thing that I’m hearing right now is that because rates are going up, the housing market will crash,” Simental said on the podcast. But, “It’s just not true.”

According to Simental, there are several reasons for this. For one, mortgage rates are only a small piece of the puzzle.

“There are many factors that go into the housing market,” he said. “Interest rates, of course, are a portion of what goes into it, but there are also other factors, like jobs, what’s going on in the economy [and] the pandemic and what’s happening in Russia and Ukraine. All that stuff plays a role in the housing market.”

Low inventory is a big factor

Another condition that continues to prop up the market is strong demand. While higher rates may slightly slow the frenzied demand we’ve seen in recent years, the market will still be competitive. Millennials are moving toward 40 now, and many are starting families and are ready to buy a home (or move up to a new one).

While higher rates may slow the frenzied demand we’ve seen in recent years, the market will still be competitive.

On top of this, there’s a severe shortage of housing inventory available. Unless demand were to drop considerably, there still aren’t enough for-sale homes to go around — and that makes competition high at most price points.

“We would need to build 2.1 million homes to be able to catch up for this decade,” Simental said. “That’s a lot of homes, and that’s not going to happen. It’s just not doable.”

Covid-era buyers are still on the market

Finally, there are the lingering effects of the pandemic to think about. With remote work on the table, many Americans are now able to move anywhere they like. In fact, according to a recent report from Redfin, nearly a third of all buyers today are looking to move outside their metro area.

“People are moving from their more expensive areas to less expensive areas,” Simental said. “In my area — Las Vegas, Nevada — we have an influx of buyers from out of state. They’re coming from California and from the West Coast, and they’re moving to more affordable housing.”

Will higher rates push buyers out of the market?

Mortgage rates are largely expected to keep rising this year. And one big question is whether higher rates will push some buyers out of the housing market, helping to reduce competition and prices for those remaining.

While there’s a chance that rates could keep some consumers out of the market, it’s important to remember that higher costs don’t always sideline a buyer. In many cases, it may just move them down the price ladder, increasing competition for lower-priced properties.

“It doesn’t necessarily mean that there will be less competition because those individuals that that were in a higher price point are now in a lower price point,” Simental said. “It just means that the people that were at a preapproval amount of $500,000 now are approved for $400,000 or $450,000. They’re still in the market to buy a house — just at a different price point. ”

Should you be worried about rising rates?

One thing is for certain, Simental said: If you’re worried about mortgage rates impacting your ability to buy a home — or the competition you’ll face when you do — you should get with a good real estate agent and loan officer to start strategizing.

It’s still possible, and buying sooner than later will help you leverage the market’s rising home values (and gain more equity because of it).

“If you’re able to buy a house, get yourself in and start gaining equity,” Simental said. “Take advantage of the amazing benefits of being a homeowner.”

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Aly J. Yale
Authored By: Aly J. Yale
The Mortgage Reports contributor
Aly J. Yale is a mortgage and real estate writer based in Houston who has contributed to Forbes and worked for organizations such as The Dallas Morning News, PBS, NBC, and Radio Disney.