Rising Mortgage Rates

A new year means new homebuying opportunities, but with mortgage rates rising, what does this mean for 2022 homebuyers? According to Redfin, there will be a significant drop in affordable housing in the cities of Atlanta, Austin and Phoenix.

The housing boom created in the wake of Coronavirus caused home prices to skyrocket and housing inventories to dramatically decrease. The Federal Reserve raised interest rates to alleviate rising inflation and as a result, mortgage rates have been inching up and most likely will increase again in March of this year.

Since March 2020, interest rates have stayed relatively stable and below 3.5%, allowing many homebuyers to realize their dreams of homeownership. These low-interest rates also fueled a ton of home purchases adding to demand and supply chain disruptions. At present there is a significant gap in the national housing inventory between existing inventory and demand from potential buyers. The beginning of 2022 was the first time interest rates rose above 3.5% since the start of the pandemic, leaving many to question the future of the housing market.

When interest rates start to rise, home sales normally decrease. However, this has not been the case as national pending home sales increased by 38% in January 2022 in comparison to the same period two years earlier. In a December survey conducted by Redfin, many homebuyers felt a rushing need to purchase a home as interest rates started to rise.

“If rates were to rise much further in a typical market… Buyers would go from feeling more urgency to buy to feeling less urgency. That’s because rates would ultimately reach a point where renting is more feasible than buying,” said Redfin Chief Economist Daryl Fairweather. “But this isn’t a typical market. Rental prices are soaring too, so instead of renting, many buyers will likely purchase more modest homes in relatively affordable places to avoid increasing their monthly budget.”

According to Redfin, 46.3% of homes for sale in Raleigh were affordable at a 3.9% interest rate on a $2,000 monthly budget in January 2022, a 3.8 percentage point decrease compared to previous years. The cities of Atlanta, Austin, Phoenix and Houston experienced similar declines.

The city of Detroit had the highest amount of affordable housing, with 89.4% at the same interest rate and budget. The city showcased the highest share of affordable housing amongst the 50 most populous metro areas.

Popular migration destinations such as Atlanta, Austin and Phoenix will continue to see a dramatic decrease in affordable housing in the aftermath of the recent population boom with rising interest rates.

In the wake of COVID-19, homebuyers searched for affordable, amenity-rich cities to settle down. This trend led to increased populations in already dense city centers as well as dramatic increases in housing prices. The Atlanta housing market has already experienced a 3.2% drop in affordable housing with downward trends expected to continue.

Redfin is a technology-powered real estate company that assists readers with renovation services, homebuying, rentals, title insurance and lending. For more information or to contact a Redfin local agent, visit www.Redfin.com. The Redfin Data Center is a fantastic resource for current housing market trends, data and more.

To stay updated on the latest in metro Atlanta homebuying, follow along on Atlanta Real Estate Forum for regular updates on industry trends, upcoming events and new metro area communities.

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