What to Expect from the Rising Interest Rates and the Housing Market

As we enter spring, we prepare for the home buying season that occurs in Utah each year.  We continue to see challenges in the mortgage sector that includes historically low inventory for prospective buyers and interest rates moving higher.

Interest rates can affect an individual’s purchasing power as rates go higher. 

The FED has also signaled that they will begin raising rates this year to fight inflation.  This may have the effect of actually slowing the speed with which mortgage rates have been rising.  Inflation is the arch enemy of long-term debt, including mortgages, because inflation effectively lowers what your currency is worth.  For example, if you owe $100,000 and inflation is at 7% then it will take $107,000 to pay that debt and that is before you factor in interest rates.

So, as you can see, any battle to lower inflation is viewed favorably by investors that purchase mortgage-backed securities and that can help stabilize mortgage interest rates.

As rates rise, we will see inventory begin to become available also, simply because some of the demand will wane.  Currently, the United States has a 0.6 month inventory of houses for sale.  A typical healthy market has 6 months. 

Because of the lack of inventory, we feel confident that there is no housing bubble crisis similar to what we saw in 2008.  Home prices will continue to appreciate until the demand has been met.  At our current rate of construction that may be about 5 years out.