Mortgage rates have gone up again.
(See Here Are Today’s Mortgage Rates on March 3, 2023: Rates Tick Up written by Justin Jaffe (CNET) at https://www.cnet.com/personal-finance/mortgages/here-are-todays-mortgage-rates-on-march-3-2023-rates-tick-up/).
Normally when mortgage interest rates go up, home prices decline. However, right now we are not seeing much movement downward in home prices. So what does this mean?
It all depends on who is answering this question.
To digress a little, a lot it depends on the location. Real estate has always been about location, location, location. That has not changed, and it will probably never change. What has been, and has always been, in the location is that a good location at any given time period may not remain a good location especially for lower priced homes. The way I describe the relationships between the locations and prices phenomena is that as locations go, what is good today might be bad tomorrow and what is bad today might become good tomorrow.
I have actually lived through the locations and prices phenomena during the ups and downs of the real estate market over my lifetime – which has been rather long since I am now in the 65+ age range. In my opinion, several of the locations where I have lived during my lifetime have fluctuated – some from good to bad and some from bad to good. I say in my opinion since good and bad are relative words because what I think is good, and what I think is bad, may not be what you define as good and what you define as bad. The number one factor I use to judge whether a location is good or bad is the crime rate – especially the violent crime rate. The second factor that determines whether or not a location is good or bad for me is whether or not the homes and yards in that neighborhood are maintained in good condition or just let to deteriorate.
So why do they deteriorate? Most often homes deteriorate due to the cost of maintenance as they age. It is not usually a conscientious decision of the homeowners to not maintain their properties. To illustrate this, let’s use the home value increases of 2020, 2021, and 2022 as an example which has resulted in property tax increases on most homes. In addition, property insurance premiums have been rising. These rising costs have then caused the PITI (principal, interest, tax, insurance) monthly payments for those who have mortgages on their properties to escalate upward. There are also other continued rising prices for necessities – like food and gas – that everyone must pay. When all of these costs of living are rising, maintenance of homes and yards, simply put, becomes unaffordable for many people.
Now, to get back to the original topic! Normally when interest rates on mortgages go up, home prices decline, but so far we are not seeing much movement downward in home prices in my location. So what does this mean?
I believe we are at the top of the market. I believe that prices will not continue to rise in my location and in the majority of locations in the United States. And I think prices will fall in most locations here in the U.S. Actually, there are some locations where prices already have been falling. In most locations, though, prices seem to be remaining stable or going up a little – especially on the lower priced homes.
According to the National Association of Realtors (NAR), the median existing-home sales price was up 1.3% to $359,000 in January compared to a year ago nationwide in the United States. However, this increase was at a slower pace compared to December, and the month-over-month existing-home sales prices have declined and are approximately 13% lower than their record high in June 2022. (See Housing Market Predictions For 2023: Are Home Prices Finally Becoming Affordable? by Robin Rothstein, Forbes Advisor at https://www.forbes.com/advisor/mortgages/real-estate/housing-market-predictions/.)
In my area, which is Waycross, Georgia, $359,000 can buy you a really nice home! That is not what is considered to be a lower priced home in my area. But again, I digress.
In my opinion, it is only a matter of time if interest rates continue to rise (and possibly even if they don’t rise) that prices on homes will decline in most areas of the United States. I will be surprised, though, if they drop below the pre-COVID pandemic prices. I believe there will continue to be low inventory in 2023 which will keep prices too high for a lot of people sitting on the sidelines now wanting to buy who are not financially able do so because of the still high prices.
I believe that the low inventory of homes for sale is the only reason that we are not seeing a decline in the prices of homes in the midst of the drastic increases in interest rates on new mortgages over the past year. So, that is my answer!
As a footnote, I think we are going to see a lot of people relocating out of their current states in the coming years in order to acquire a more affordable place to live. It will involve jobs, housing costs, infrastructure (including utilities like water, electric, and the internet), and climate changes. I did it in 2017 when I retired from my last teaching job. I left Florida and moved to Waycross, Georgia, where I now live, because I knew then I was going to need a more affordable place to live as I grow older. And since 2017 in my job as a REALTOR®, I have helped others to also relocate to find a more affordable place to live, and I see an increase in more people relocating for that same reason in the coming years.