Everyone is watching interest rates as the market braces for a real estate crash in 2022.
As we close out the year 2021 many are looking at 2022 as being a big year for real estate. After 30 months of record growth, the market is slowing down. This along with an overall negative global economic outlook has many wondering if a real estate crash is closer than ever. The biggest factors behind market growth have been inflation, housing supply, and interest rates.
Most real estate experts would point to low supply (i.e. not enough houses for sale) as the main reason for the record growth we have seen. Interest rates are seen as the main reason that demand has remained so high despite the pandemic and record high prices. However, as inflation worries increase, more people are worried that interest rates may be set to increase drastically soon.
The Federal Housing Finance Agency reported that the first quarter of 2021 saw the biggest annual increase in median home prices since the agency started tracking that data.
The speed at which rates increase in 2022 will dictate how soon and how fast housing prices may fall. Real estate is a long-term investment, but for those contemplating a home sale in 2022 you will want to pay close attention to how this plays out.
How do interest rates affect housing prices?
Low interest rates mean people can pay more for a house. While studies show that buyers look primarily at their monthly payments when analyzing affordability, interest rates directly affect that number. So simply the more interest that buyers pay banks, the less they pay the seller for the actual house.
Will higher interest rates affect real estate demand?
In short, yes. Higher rates will either affect demand or simply prices because of affordability. Simply put, if buyers can only afford to pay a certain amount, then prices will have to match that. For every 0.5% increase you will reduce true affordability by over 10%. Additionally, an increase in rates will likely cut out younger home buyers who were relying on lower down payments to meet record high prices. All of these factors will impact demand and price, the question really is how much?
Real Estate outlook in 2022
The bottom line is rates will likely heavily dictate what happens to housing prices in 2022. With that said most real estate experts do not predict a crash in 2022. While demand may cool, it will not change the fact that housing supply remains at record lows. Even if many buyers leave the market, there will likely be multiple eager buyers vying for each available property.
If you are thinking of downsizing, moving, or cashing in on your real estate holding, it might be time to start exploring your options. Depending on how fast you want to sell, and the condition of your property, you may want to consider partnering with a local real estate investor.
Why you may want to sell your house for cash
Holding costs account for 0.7% your home sale value each month. This is due to property taxes and other fees that go into a home sale. This is money out the window. Now add a looming market crash and the pressure to be efficient and fast with your home sale is crucial. Local investors can offer cash, cover costs, and close faster than any traditional buyer.
If you have any questions, feel free to connect with our team of investors. We will either work on providing you a fair cash offer, or make formal recommendations for the best home sale strategy that suits your needs.