AFTER RECENT INTEREST RATE HIKES, WHAT'S IN STORE FOR HOME PRICES?

Strong demand for loans of all types, and the effort of the Federal Reserve to cut the inflation rate have forced interest rates to skyrocket this year. Mortgage rates have risen from 3% to 5+%, increasing the monthly payment for homebuyers borrowing for their home purchase to pay several hundred dollars per month more. This, along with already high prices resulting from a supply/demand imbalance has priced many homebuyers out of the market. 

Is this enough to curb to rise in prices? What is happening to supply and demand now? What are buyers and sellers reacting too? 

There are many threads in the fabric of the answers. Some sellers were holding off in the hopes of catching the top of the market. Others held off due to fears of finding another place to live. Buyers have been scrambling to find homes for a couple of years now, and while some have to give up for now with the increased cost or move to a less expensive home than they wanted, others are jumping in to try to get ahead of the next rounds of rate increases. We should remember that for most of the last 20 years rates have been higher than this, and it seems likely they will rise again before leveling off or dropping back down. Prices move up and down with the opposing tugs of hopes and fears of both sides. 

At this writing, it looks like more rate hikes will be coming as the Federal Reserve tries to reign in exceptionally strong inflation. Being an election year, the current administration wants to show some progress in the fight to keep inflation under control. The rate of inflation, which measures how much more money is required to purchase the same goods had a slight drop in 

the rate of growth, but still is almost 5% above the Fed target. Clearly more work to be done. 

Home prices are still rising, even though the ranks of the buyers have thinned some, it is not yet 

to balance supply and demand. When that will happen is impossible to predict accurately, as it is not simply economic reports that drive activity, it is consumer expectations and their willingness to buy or stop buying. That is the key to the uncertainty. 

Supply and demand will eventually come into balance, and may even flip in favor of the buyer. However this looks to be at least a year and maybe more away, perhaps even needing a rate induced recession to jolt the marketplace for homes. This inflation is different from the past, as this is due in part to supply issues across the economy resulting from Covid related shutdowns. These are and should continue to work themselves out, taking away some of the inflationary expectations. Consumer behavior will also adjust, as borrowing power is fully utilized, thus limiting new buying. The Millenium Generation had largely decided they preferred to spend their earnings on experiences rather than homes - until Covid grounded them and they went full speed into making home the place to work and play as well as live. 

Many factors to consider. Right now it looks like more of the same, perhaps at a slightly slower pace.