Published Date 5/16/2022

When mortgage rates were in the double digits (1980s), everyone was complaining. But they eventually drifted downward. Lately mortgage rates on 30-year fixed rate loans have added more than two percentage points to a 30-year loan and everyone is complaining again – not because of rates, but because home prices have gone through the roof, boxing out a slew of homebuyers – growing about 20% from March 2021 to March 2022, according to CoreLogic.

MarketWatch’s Deputy Chief economist Brienne Walsh sees some good news coming out of several sources, however. Not about rates, but about home prices, translating into signs that competition in the housing market may be cooling off. Redfin’s Taylor Marr reported that for the first time in six months, homebuyer competition dropped slightly in March of 2022. “Sixty-five percent of homes sold by Redfin agents faced competition — or multiple offers — in March of 2022, down from 67% in February. I do expect competition to continue to decline.”

She cites multiple reasons for the change, including rising interest rates (mirroring the Federal Reserves’ policy moves to reduce inflation), baby boomers staying in houses rather than moving to retirement communities, and the conflict in Ukraine. “Homes are still selling over asking price, but the market is shifting,” Marr says. “When you change the thermostat, it takes time for it to cool down.”

National Association of Realtors’ Chief Economist Lawrence Yun shared that he, too, sees competition declining soon: “The combination of rising interest rates and rising house prices will push some would-be buyers out of the market, which may result in reduced competition after the summer buying season is over.” The two experts agree that by the end of summer, there will be lower competition among buyers on listings, as well as more housing on the market. But some areas – hot migration destinations, such as Tampa, Phoenix, Nashville and Atlanta, may continue to see high rates of competition on listings. Walsh includes predictions from Tomo’s Skylar Olsen, who also looks to an end-of-summer decline and a cooling off of the market. “We’re in a transition period,” she says of what’s happening now.

Despite all this, buyers should not expect to suddenly get great deals. MarketWatch Picks recently reported — after talking to five economists — that it is unlikely that home prices will fall significantly. “Home prices will keep going up because there aren’t enough houses available to meet demand, but the combination of rising home prices and elevated mortgage rates means fewer people will be able to afford to buy,” Nerdwallet’s Holden Lewis predicts.

All agree that buyers shouldn’t force themselves into bidding wars just because they’re panicked about interest rates. If a house or unit looks like the place you intend to make your own for for an extended period of time, they say to move forward. As for locking down a rate, speak often to your loan professional.

MarketWatch, TBWS

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