What’s Going on With the Real Estate Market: Rising Mortgage Rates & What They May Mean for Buyers & Sellers in Oregon & Washington
Mortgage rates have a major impact on the cost of financing your future home.
As a borrower, you’re after the lowest possible interest rates. Mortgage lenders, on the other hand, have to leverage interest rates to manage their risk.
With all the changes in the market and rising mortgage rates, you may be wondering..
- “What do rising mortgage rates mean right now for me?”
- “When will home prices drop?”
- “Should I wait to buy a house?”
- “Is this a good time to put my house on the market?”
Whether you’re buying or selling in this housing market, there are things you will want to be aware of that may impact a real estate transaction.
We explain five key reasons for the rising mortgage rates and give you an up-to-date forecast for the future outlook of the Portland housing market.
Table of Contents
- 5 Reasons Why We’re Seeing Rising Mortgage Rates
- Are We in for a Repeat of the Great Recession?
- What’s the Forecasted Outlook for the Housing Market in the Pacific Northwest?
- PEGGY HOAG REAL ESTATE: The Experience and Know-How You Need to Navigate Today’s Complex Housing Market & Rising Mortgage Rates
5 Reasons Why We’re Seeing Rising Mortgage Rates
It’s no secret that inflation is hitting every area of our lives.
It packs a powerful punch to the US dollar and our purchasing power. Inflation’s gradual upward motion reflects our overall economy, and it is a critical issue for mortgage lenders.
Inflation’s erosion of purchasing power means lenders have to struggle to maintain interest rates at a level that ensures a real net profit.
For example, let’s say mortgage rates are at 5%, with a 2% annual inflation. With that combination, in terms of the purchasing power of the dollar, the real return to the lender is just 3%.
This is why mortgage lenders keep a close eye on the rate of inflation, so they can adjust their rates accordingly.
#2: Rate of Economic Growth
Mortgage rates are influenced by various economic growth indicators, including:
- The employment rate; and
- Gross domestic product (GDP)
In a healthy, growing economy, we see higher wages, which lead to greater consumer spending. This includes consumers applying for mortgage loans to purchase homes.
But lenders can only lend so much capital.
So while the above factors may be a boost to the economy, the upswing in the overall demand for home mortgages typically propels mortgage interest rates even higher.
#3: “The Fed”
The Federal Reserve, or “The Fed,” controls the amount of money in the U.S. economy. Their monetary policy is one of the key factors influencing both the economy and interest rates, including mortgage rates.
Recently, The Fed stepped up its battle against inflation by announcing the largest hike in interest rates in the past 28 years.
Does this increase in interest rates mean the U.S. housing market is in for depreciation? It’s highly doubtful.
Despite this increase, the demand for housing continues to outpace the supply. For this reason, experts are predicting a continuation in home price appreciation — just at a slower pace.
#4: The Bond Market
Investment firms and banks sell mortgage-backed securities (MBS) to investors. The resulting yields from these debt securities have to be high enough to attract buyers.
The bond market’s condition indirectly affects the amount lenders need to charge for mortgages. A lender has to generate sufficient MBS yields to make them competitive in the debt security market.
Part of the equation in making MBS appealing to investors is the fact that corporate and government bonds offer competing long-term fixed-income investments. And the money earned on these competing investment products affects MBS yields.
#5: Housing Market Conditions
Mortgage interest rates are also influenced by the ever-changing trends and conditions of the housing market.
When there is less new construction or fewer homes offered for resale, it leads to a decline in the demand for mortgages — and pushes interest rates down.
Recent downward pressure on interest rates has also been affected by the increasing number of consumers opting to rent rather than buy a home.
These types of changes in the availability of housing and consumer demand impact the levels at which mortgage lenders set loan rates.
Are We in for a Repeat of the Great Recession?
During 2006 and 2007, U.S. home prices soared.
Then the Great Recession hit, and in December 2007-June 2009, housing prices tanked a whopping 33%.
Because of the past plummeting prices, many millennials have been misled into believing our current high home prices will eventually come down. But don’t hold your breath.
While trends often repeat, it’s not anticipated that our current housing market will follow suit.
What’s the Forecasted Outlook for the Housing Market in the Pacific Northwest?
In today’s market, the demand for homes continues to outpace supply. With this type of pressure on housing prices, it’s not likely they will decline anytime soon — although supply is starting to pick up.
Even with the increase, a gap still remains between the number of homes available for sale and the number of buyers looking to purchase. This is why experts are forecasting price deceleration, not depreciation.
Housing prices will continue rising — but at a slower pace.
However, the current U.S. housing market is a unique creature. Even though the country is bracing for a possible recession in 2023, don’t expect housing prices to come crashing down anytime soon.
The real estate market is bracing for a much gentler landing than last time around.
The current erratic housing market is not attributed to lax lending standards, but rather the imbalance of housing inventory. Demand is still greater than availability. Factor in our strict lending standards and continual creation of jobs, and you have a formula that will work together to keep home prices from declining.
The National Association of Realtors (NAR) expects home prices to rise 5% by the year’s end.
PEGGY HOAG REAL ESTATE: The Experience and Know-How You Need to Navigate Today’s Complex Housing Market & Rising Mortgage Rates
Trying to make sense of rising mortgage rates can be overwhelming.
But, having the right real estate agent can ease the stress of buying or selling a home.
If you are considering buying a home in Oregon or Washington, PEGGY HOAG REAL ESTATE has the professionalism and know-how you need to make your experience a walk in the park.
Our vast knowledge of the area, coupled with our 30+ years of experience, means you can rest assured you’ll have a smooth home buying or selling experience.
PEGGY HOAG REAL ESTATE is here to help make your dream a reality. Contact us today.