This article is reprinted with permission House of escape, a newsletter for second home owners and would-be owners. Subscribe over here. © 2022. All rights reserved.
High inflation and rising interest rates have led to speculation about the housing market, with many throwing around the word “crash”. This week, The Escape Home’s Danielle Hyams checked in with Redfin’s Chief Economist Daryl Fairweather to find out exactly what’s going on.
EH: What is the effect of higher interest rates on prices and demand?
Fairweather Interest rates have actually decreased demand. The average monthly mortgage payment on a home is 40% higher than it was a year ago, putting a real dent in the buyer’s budget, which is why we’ve seen a slowdown in prices, demand and sales.
EH: Does that mean it can shift from a seller’s market to a buyer’s market?
Fairweather If you get to the point of being approved for a mortgage and you have houses that you’re looking at on the market within your budget, I think you have an upper hand, it’s really hard for people to get to that point now.
EA: Have you seen any impact on housing from the tight labor market?
Fairweather It helps people move. So one thing that’s happening is that very expensive housing markets have seen people leave. Places like the Bay Area and Los Angeles – not so much New York, New York is a different picture – but those expensive west coast markets, especially for $1 million + listings, have a lot of rejection. Because people are in those million dollar and extra areas, they’re packing up and moving, and the job market is so tight that it’s a viable option. If they are far away, they can take their job with them or they can easily find a new job elsewhere.
EH: Speaking of remote work, have you seen any impact on the housing market as telecommuters move back into the office?
Fairweather No, I don’t think that’s enough to make a difference. Maybe in New York City, where they got all those pandemic-era deals on apartments and people were scared to live in New York when the pandemic happened, but a lot of people want to go back to New York because it’s a very active area and some people want to be in an office there, but it’s still not back to what it was before the pandemic. .
EH: How does the second home market look?
Fairweather The second home market is cooler than it was during the pandemic. With interest rates high and the economy weak, people are not buying second homes when they are worried about their stock market portfolio.
EH: A lot of buying was led by investors during the pandemic, has that changed?
Fairweather Investors’ buying has been rampant since 2021. Investors went ahead with buying because investors are very savvy – they saw how low interest rates were going to be in 2020 and 2021 and that’s why they got out of the market. But now that interest rates are high and many are less concerned about the growth of the housing market, it is not such a good investment. When interest rates come down, I expect them to come right back up.
EH: Any predictions on when interest rates will go down again?
Fairweather If we are in a recession, they will fall. Or if inflation starts to come down and we have a soft landing with the economy – which is what the Fed is going for – then interest rates will gradually come down.
Eh: Does that mean you have to wait to buy?
Fairweather Because you can always refinance later, you really don’t have to wait on the account of loan rates, it is more than being able to buy a house at the current mortgage rates to be willing to stay for five years. If you can do that now, you may be able to refinance later and lower your mortgage payment even further.
EH: Predictions for the next six months? Is the housing market really going to crash?
Fairweather It really depends on the economic process. If inflation continues and the Fed has to raise interest rates more than they currently plan to combat, interest rates will rise and the housing market will suffer. If inflation starts to come down and the Fed is able to pull back on raising interest rates, I think things will probably flatten out and we’ll have home values at the same level as last year going into 2023. In a recession – if it’s a mild recession, I think it’s the same thing because interest rates are going to go down and that’s going to encourage some people to buy houses, at the same time the recession itself is going to slow down the demand, so I think it’s going to be kind of like that. One wash. If we have a severe recession, I think the housing market could see a 5% drop in prices.
This article is reprinted with permission House of escape, a newsletter for second home owners and would-be owners. Subscribe over here. © 2022. All rights reserved.