In a recent survey, real estate brokerage Redfin asked home buyers and sellers how rates rising above 3.5% would impact their housing plans. Of respondents planning to buy this year, 47% said they would feel more urgency if rates rose that high.
Another 29% said they would look for smaller homes or in different areas, while 14% said they would slow down their search in the hope that rates decrease. Just 7% said the higher rate wouldn’t change their plans and just 2% would cancel their plans altogether.
With experts predicting rates will continue to rise, this survey can be a clue to where the housing market will go in the months ahead. Daryl Fairweather, Redfin’s chief economist, for example, expects rates to reach 3.6% by the end of the year.
“Mortgage rates increasing will make home-buying less affordable. Over time, that will put the brakes on demand and put an end to double-digit annual price growth,” said Fairweather. “But in the short term, this increase will light a fire under home buyers and make for an extremely competitive January.”
Although rising rates may add incentive to get a deal done sooner, buyers still have to deal with a housing market that is lacking enough inventory to meet demand. For the four-week period ending on January 2, Redfin is reporting a 27% decrease in active listings and a 10% decrease in new listings year-over-year.
There is positive supply news in some markets, however.
Redfin agents in some of the hardest-hit markets in terms of inventory have seen increased homeowner interest in selling. Many of these would-be sellers have already begun sprucing up their homes, getting them ready to be listed early this year.
Fairweather noted, “This gives me hope that more sellers will be motivated to take action now that the new year has arrived.”
In addition to dealing with higher rates and low inventory, buyers will also have to deal with high home prices. During the four-week period ending January 2, home prices rose 14% to a median sales price of $358,460. Most experts expect home prices to rise this year, but at a slower pace than in 2021.
“This month, the stage will be set for the 2022 housing market, and we’ll be watching closely whether prices climb like they usually do in January or whether they start off high and stagnate due to rising mortgage rates.”