Wow, what a crazy market we are in right now. The level of inventory remains extremely low and demand remains robust even with interest rates about 1.5% higher than they were a year ago. A 30 year fixed rate mortgage is now around 5.25%.
The question becomes, should I buy now or wait? It’s a complicated question and depends on your situation. We are now in the spring selling season where inventory is coming off its seasonal low point and demand is at its highest point. See the chart regarding showing activity. Typically demand peaks in April. That leads to homes selling fast and buyers getting anxious about how quick they are selling and offering more to secure the home.
Generally once we get to the end of May then the supply outweighs demand and the market stabilizes. I do feel that when we get to summer, we will see homes stay on the market longer which will lead to a much needed rise in inventory. This will lead to more options for buyers but prices will be based on what they were selling for in spring. Will buyers be ready to pay those prices at higher interest rates? To be determined.
The buyers that are out there now are in a real pinch because they have high prices and higher interest rates. If interest rates start to get into the 6% range then I feel the real estate market will have cracks in it but it is unlikely that we will see a large drop in home prices (at least not right away). We have a lot of room for inventory to grow. If interest rates go higher than 6% then I would prepare for a significant slow down in home sales.
One thing to keep in mind though, this is not like the last housing boom we were in. That was led by too many buyers due to bad lending practices. The current situation is due to a lack of sellers and too many buyers because of extremely low interest rates. Interest rates going up will help reduce the buyer demand and allow inventory to grow.
If you’re a buyer, I would not advise you to buy unless you are planning to be there for at least 7 - 10 years or have a plan to rent it out if you need to move before that. You should be able to ride out a market downturn if you stay at least that long.
This hot real estate market may have more runway ahead of it but it is not something I would get used to.