The Fed Has Spoken
And Charlotte home buyers and their agents are listening. The latest Freddie Mac survey reveals the average interest rate on a 30-year mortgage now stands at 3.22%, the highest since May of 2020. With the uptick in inflation, the Fed’s action came as no surprise.
What might surprise many, however, is what little effect this rate hike will likely have on the housing market. Normally, an increase in interest rates will cool demand, and the red-hot housing market could use a little cooling off. However, this is not a normal market. While rising mortgage rates traditionally put a brake on demand, therefore easing prices, most analysts believe that inventory is so low and rental rates are rising so quickly that the latest rate increase will not only fail to cut existing home prices, but will do little to halt future home price increases.
In fact, we can already see some vindication of this. The recent uptick in home interest rates has actually spurred homebuying frenzy to even greater heights since buyers have raced to close before the new rates went into effect. And though the Commerce Department reports a 6.8% increase in new housing starts, ongoing supply chain issues will continue to drive up the cost of construction materials.
But we have to keep in mind that today’s mortgage rates, even after the latest hike, is low compared to inflation.
As of February 28, 2022, the average sales price of a home in the greater Charlotte region spiked by $66,755 to a new high of $407,812, an increase of 19.6% from 2021. This is a direct consequence of the continuing crisis in home inventory, which saw yet another steep drop from the previous year. There were 1,940 less homes on the market than one year ago, a decrease of 45.9%, resulting in a total of 2,283 homes currently available for sale. The intense competition for homes is why the number of days on the market dropped by 9 days compared to February, 2021 to a total of 23 days, a decrease of 28.1%.