As we head into the busiest season in the housing market, many people are asking the question, “will we see buyer demand decrease with rising mortgage rates?” Although we are seeing mortgage rates continue to rise, the answer to this question comes down to simple economics: supply and demand.
Local Housing Supply
Just last year we witnessed historic lows in the available homes for sale regionally. This year, the story isn’t much different. As more and more people continue to move to our area, housing supply will continue to remain low. Reno/Sparks currently has under a month’s supply of available inventory. This is a measure of the number of months it would take to sell through the available home inventory at the current sales rate. Just two years ago, the amount of inventory was well over three months.
It may be better to view housing inventory in another light. It is not necessarily the case that there are “not enough” homes to meet demand. If this were true, we would see this reflected in a declining number of closed home sales over time. We continue to see closed home sales staying relatively at the same rate as they have since 2017. What we are seeing is available inventory being swept up at an extraordinary rate.
Local Buyer Demand
Since well before 2008 regional home construction has not kept up with buyer demand and the ever-increasing population. Just last month Reno/Sparks saw another median sales price record crushed at $575,000. Furthermore, March witnessed yet another month of sellers receiving well over list price and just five days to contract (tying the previous record from around this time last year). This is a clear indication that, despite rising mortgage rates, local buyer demand remains exceptionally strong.
This is all not to say, however, that rising mortgage rates won’t continue to suppress buyer power. With every one percent rise in mortgage rates a buyer loses ten percent of their buying power. For example, if a buyer was previously approved for a loan of $750,000, a one percent increase in their rate means that they’re now approved for a loan of just $675,000. This should encourage buyers to take a real look at their financial situation and decide whether buying now or buying in the future when mortgage rates could be higher is the right move for them.
What About a Market Crash?
If you haven’t noticed, home prices have been soaring both nationally and regionally for quite some time. Just last year we saw appreciation rates in the Reno/Sparks area surpass twenty percent. This was largely due to the COVID-19 pandemic, historically low mortgage rates, and high demand from out-of-state buyers. Now that COVID is no longer considered a pandemic and mortgage rates are nearing 5% (versus mortgage rates last year sitting at under 3%), we are likely beginning to see a softening of the housing market. This is not to say, however, that we are seeing any indicators of a market crash. Factors that lead to the recession of 2008 (such as reckless mortgage lending) simply aren’t in play anymore. What it likely means is that the housing market is beginning to stabilize and gradually return to “normalcy.” This was even predicted last year, as most experts agreed that national appreciation rates would slow to somewhere between eight and ten percent for 2022.
If you have any questions regarding housing supply, buyer demand, or anything real estate related, please don’t hesitate to reach out to us at the Hughes Group!
Posted by Sam Dykstra on