The share of home sellers dropping their asking prices has risen to a six-month high. More home buyers may be starting to feel priced out by the rapid rise in mortgage rates, which may be making sellers have to adjust slightly. The 30-year fixed-rate mortgage averaged 5.27% last week, up from 2.96% just one year ago, Freddie Mac reports.
Mortgage Rates Higher Than at Any Point in 2021
Mortgage rates have taken a big leap at the start of the new year. In the first week of 2022, the 30-year fixed-rate mortgage jumped nearly 60 basis points higher than a year earlier, averaging 3.22% this week, Freddie Mac reports.
“Mortgage rates increased during the first week of 2022 to the highest level since May 2020 and are more than half a percent higher than January 2021,” says Sam Khater, Freddie Mac’s chief economist. “With higher inflation, promising economic growth, and a tight labor market, we expect rates will continue to rise. The impact of higher rates on purchase demand remains modest so far given the current first-time home buyer growth.”
The National Association of REALTORS® forecasts that mortgage rates will average 3.7% by the end of this year.
Source: Freddie Mac and “Instant Reaction: Mortgage Rates, January 6, 2022,” National Association of REALTORS® Economists’ Outlook blog
High inflation is affecting real estate
Rising inflation is pressing on Americans across the economic spectrum with costs for groceries to gasoline increasing. In November, consumer prices increased by 6.8% compared to a year ago, the largest annual gain in the past 40 years.
Some of the highest increases occurred for energy, shelter, cars, and food, which comprise about 61% of consumer purchases and account for 81% of inflation over the past 12 months, MarketWatch reports.
Renters may be feeling the impact. Rents are up 3% and accelerating at about 5% annually, says Lawrence Yun, chief economist of the National Association of REALTORS®.
Also, heating bills are increasing; natural gas prices have jumped by 25%.
Yun also warns that the increase in inflation is a primary reason that mortgage rates will likely rise in 2022. The 30-year fixed-rate mortgage is predicted to reach 3.7% by the end of 2022. Rates averaged 3.10% last week, according to Freddie Mac.
“One aspect of inflation is that real estate has proven to be a good hedge,” Yun says.
As he explains in a recent statement:
“In the 1970s, a high inflationary period when [the Consumer Price Index] averaged 7.1% per year, home price gains outpaced inflation with a 9.9% gain. Even when interest rates soared in the 1980s and thereby crushed home sales, home prices still held up to consumer price inflation: 5.5% versus 5.6%. That’s because rents are soaring. Other decades also show similar patterns. Therefore, for those concerned about the loss in purchasing power of money and savings, be assured that real estate has proven to be a good hedge against inflation.”
Source: “Instant Reaction: Consumer Price Index, December 10, 2021,” National Association of REALTORS® Economists’ Outlook blog and “Inflation Is Running Rampant in the U.S.—Here’s Where It Is, and Isn’t,” MarketWatch (Dec. 11, 2021).
