Columbia housing market may cool after interest rate hike

Colombia’s hot real estate market, which has seen rising prices and demand for months, could soon be cooled by a recent big increase in the interest rate, some economic experts say.

And that’s kind of the point.

The Federal Reserve announced on Wednesday that it would raise its benchmark short-term interest rate by 0.5%, the biggest increase since 2000. The aim is to reduce consumer demand by making it more expensive to buy of a house, car or other items. The hope is that a drop in demand will help curb inflation, which hit 8.5% in March.

“It’s a double-edged sword…rising interest rates impact housing affordability and drive back demand,” said Joey Von Nessen, research economist at the Darla Moore School. of Business from the University of South Carolina.

Von Nessen said the region has already seen the impact of rising interest rates on home loans. The Fed raised the interest rate for the first time since 2018 in March.

“We’ve already seen mortgage rate hikes … several hundred dollars for homebuyers, which is significant,” Von Nessen said.

The idea is that if fewer people are buying homes because of higher mortgages, it will drive down demand and curb runaway house prices, Von Nessen said.

However, for Jill Moylan, CEO and broker of Home Advantage Realty at Columbia, rising interest rates in March did not reduce housing demand in the area. Moylan said it appears buyers don’t want to wait for interest rates to rise.

“If anything, the latest rate actually increased the intensity of buyers and I haven’t seen any slowdown,” Moylan said. “We’re in a strange new world and old expectations are out the window.”

Moylan said based on feedback from buyers at all levels, including investors, it expected a similar outcome from the latest rate hike. The Fed has already said it expects multiple rate hikes throughout 2022.

According to statistics from South Carolina Realtors, the greater Columbia area saw a slight 3.9% decline in home sales in the first quarter of the year compared to the same period last year. However, the Columbia area also saw a sharp 17.9% increase in the median home sale price, while a 24.3% drop in the average number of days homes were on the market over the first quarter – indicators of strong demand. Meanwhile, housing supply is low, which could also explain part of the drop in sales.

“There’s no leveling that I’ve seen as the past six months’ closed sales are higher than the past 12 months and will likely continue to move the market for the foreseeable future,” Moylan said of of the housing market.

Still, interest rate hikes should have a slow impact on housing and inflation, Von Nessen said.

“We’re talking weeks and months,” he said. “We expect inflation to start to decline later this year.”

This story was originally published May 6, 2022 11:57 a.m.

Patrick McCreless is the on-duty journalism editor for The State, where he and a team of reporters write about the hottest news of the day and topics that help readers in their daily lives and better inform them about their communities. He attended Jacksonville State University in Alabama and grew up in Tuscaloosa, AL.

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