For the last decade I have been telling people not to fret much over the occasional rate hike here and there as rates spent the last 10 years well below the 50 year average. But this week saw one of the biggest spikes I have seen. Mortgage rates have settled in at nearly 8% which is well above the 50 year average of about 6.25%. In fact, according to Freddie Mac, rates haven't been this high in more than 20 years.
This however will eliminate many buyers from the market. The loan payment on $400,000 at 5% which is a rate readily available earlier this year is $2147 a month PI (principle and interest). At 8% the payment looks like this: $2935 PI. That's nearly $800 a month more and that will require at the very least an extra $1600 of income to qualify.
As long as the economy remains relatively strong, real estate should still land softly, but can our red-hot market survive a loss of 20-30% of the available buyer pool? I do not think so, inventory remains under two months supply but it is a safe bet that sales numbers will crash a bit if these 7.5-8% rates remain in place. We could quickly see inventory at 6-8 months supply which would move us into a buyer's market. Sellers should brace for serious pricing pressure.
Now there are some government programs that can help buyers get rates in the low 5s with some restrictions. Income has to be below $110k annually and price is limited to around $500k. But that should provide some buyer relief.
Contact Rod for more information about our local market and these new programs that could help keep buyers in the market.