Interest rates are rising, will house prices fall?

In March, the US Federal Reserve raised interest rates by a quarter point to address rising inflation and a litany of other economic problems stemming from the COVID-19 pandemic. Among other things, this rise in interest rates was expected to make mortgages more expensive in the housing sector, hopefully limiting soaring house prices and demand from consumers who were taking advantage of historically low rates to get into homes. .

But according to Veros Real Estate Solutions, a California-based enterprise risk management and collateral valuation services company, that hope may not materialize.

Veros has released its latest VeroFORECAST report, which tracks and forecasts home prices in the country’s 330 largest real estate markets. The report is a rigorous analysis and breakdown of the “fundamentals and interrelationships of numerous economic, housing and geographic variables relating to home values.”

According to Veros, the root causes of rising prices still exist in most parts of the country. Although mortgage rates are hitting around 5%, they are still historically low overall, housing starts remain near historic lows – as will inventory – while the prevalence of cash buyers and falling unemployment will continue to decline. maintain upward pressure on house prices.

As a result of these factors, Veros expects house prices to appreciate by an average of 7.1% over the next twelve months.

The average home went up by $52,000 last year and interest rate increases have pushed the average mortgage payment up by $200 a month, two more stats that aren’t expected to stop rising over the next 12 months, Veros said. Additionally, this is the first time in recorded history that house prices have risen more than the average median salary, which stands at $50,000.

“The situation the housing market finds itself in today with prices not going down or even slowing down would be analogous to someone trying to lose weight but seemingly not succeeding,” he said. said Eric Fox, chief economist at Veros. “If a nutritionist told them that they needed to start eating healthy meals, stop eating desserts, stop drinking alcohol, and start hitting the gym four times a week to achieve their weight loss goals, and they wondered why they weren’t losing weight when the only recommendation they had only partially implemented was to reduce their dessert from four scoops of ice cream a day to three. of today’s housing. We still have a long way to go before the fundamentals change significantly to cause price moderation.”

Veros found that the western cities that were most likely to see the biggest increases were: Phoenix, Arizona (a 17.2% increase); Provo, Utah (14.5%); San Diego, California (14.2%); Salt Lake City, Utah (14.2%); Coeur d’Alene, Idaho (14.0%); Colorado Springs, Colorado (13.7%); Flagstaff, Arizona (13.6%); Tampa, Florida (13.5%); Sarasota, Florida (13.4%); and Olympia, Washington (13.4%).

The cities expected to see the least appreciation are: Odessa, Texas (2.9% increase); Waterloo, Iowa (3.1%); Grand Forks, North Dakota (3.3%); Midland, TX (3.3%); Houma, Louisiana (3.4%); Bismarck, North Dakota (3.5%); Shreveport, Louisiana (3.7%); Peoria, Ill. (4.0%); Lake Charles, (4.0%); and Alexandria, Louisiana (4.0%).

About Teresa G. Wilson

Check Also

Housing Market Check-In: Asking Prices Fall as Mortgage Rates Rise Buyers | KPCC – NPR News for Southern California

Supreme Court rules that students attending religious schools are entitled to state aid The Supreme …