MINT HILL, NC – There is a strong chance that the mortgage rates in the United States will never go lower than they were last year. This is likely a sign the Great Appreciation of housing prices that has been happening since about 1990 is now over.
Since 1990, the mortgage rates have dropped and caused an appreciation in home prices. Currently, the median single-family home price in the United States sits at $343K. That same home would have been worth about $178K back in January of 1990, in January 2021 dollars.
This appreciation is due to falling interest rates. Many properties have doubled in value/price since the 1990s.
In January 2021, the average 30-year fixed-rate mortgage rate was 2.74%. On the median-priced property at $343K, that would give a person a mortgage payment of $1,400 per month. However, back in 1990, when the mortgage rate was 9.9%, a $161K property would have given you the same monthly price.
These falling mortgage rates allowed home buyers to buy more home for the same monthly payment. In fact, a buyer in 2021 could have purchased a home at about double the cost for the same monthly payment, due to the mortgage rates.
The Federal Reserve Has Raised Rates
The biggest reason mortgage rates go up is the Federal Reserve. When they raise the Federal Funds Rate, the mortgage rates also go up. The Federal Reserve has already raised rates multiple times in 2022 and they are expected to do it a few more times before the end of the year.
It was also common for the Federal Reserve to use quantitative easing to help keep mortgage rates lower. However, this program is slowly being downsized. Without a new program or way for the Federal Reserve to keep mortgage rates low, it could lead to very little appreciation in the housing market.
Possible Impact of Higher Mortgage Rates
As higher mortgage rates may cause lower appreciation in the future, it’s actually possible home ownership will become possible for more buyers. However, foreclosure rates will likely increase and first-time home buyers would feel less pressure to buy before they are truly ready.
It’s also likely, that if appreciation slows, people will put their savings and investments in other places. Wealth inequality would also be reduced over time.
Regardless of what is likely to happen, there will be changes in the housing market. Expect higher mortgage rates throughout 2022 and expect to see home prices start to fall, or at least increase at a much slower rate.
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