In August US mortgage rates (which fluxgate on a moment by moment basis) reached their highest level in 21 years.
Last month the 30-year fixed-rate mortgage averaged 7.09%. That is the highest average rate since April 2002 when it was 7.13%. A year ago, the 30-year fixed-rate was 5.13%.
At first glance the higher rates could scare some buyers away. Simply put the higher the interest rates climb, the higher the monthly payment become. Ironically, if some buyers are scared off, that could pave the way for housing prices to come down, for the market to level off, and for other buyers to take advantage of lower prices.
“When you think back about how crazy the housing market has been in the last few years, with homes going above asking price and going under contract within hours of being listed, a lot of that was the result of the low rates,” said Scott Saxton of Just For Buyers Realty. “Many of those buyers were investors looking for rental properties. Those are the buyers who are most likely to be scared off because the math no longer works for them to make a profit.”
The Cape Fear region has already seen the first signs of a price correction. The most recent number, from July, show a 6.3% decrease in housing prices in a year-to-year comparison. Meanwhile the total inventory has increased. Last year in New Hanover, Brunswick and Pender Counties, there were an average of less than one month worth of homes on the market. Today there are more than two months worth of inventory. (Real Estates experts use a formula that divides the number of houses currently for sale by the average number of homes sold per month.)
“Traditionally speaking a buyer’s market happens when there are three months worth of inventory,” said Saxton. “If we can get to that number again, and it’s possible with the current interest rates, than you will see prices coming down even more and buyers coming to the table with more leverage than they’ve had in years.”
And while that day is not here yet, Saxton and other experts say that this is the time for buyers to start the process of getting things ready for the potential change. The higher rates may be bad news for some today, but if they help bring a price correction to the market. then it could be very good news for others in the near future.