Have you dipped your toes into lava lately? I joke about this with my clients who are currently shopping for a new home, especially if they started their search within the last few months – The day before Christmas, the average 30-year fixed mortgage rate was 3.05%. Then, a few weeks ago (Easter), that rate spiked to 5%. And now rates are creeping even higher. So much for taking that family vacation this year! This jump in mortgage rates is forcing many buyers to take a more critical look at their current budget and, in some cases, lower their expectations of what they can genuinely afford or get out of the buying process altogether.

Are higher mortgage rates a good thing? 

Mortgage rates are the highest they’ve been in 13 years, and home affordability is the lowest in 15 years. Is that a good thing? The lead analyst at HousingWire, one of Real Estates leading resources, says yes, it’s a good thing. He says spiking mortgage rates could take some steam out of the red hot market and give inventory a chance to rise. If that happens, it could slow down the rate of home price appreciation and reduce the possibility of an overheated housing market ending in a big crash or bust. He agrees that higher mortgage rates are the best thing because we are in a “savagely unhealthy housing market” and need to get off these shallow inventory levels. Too many people are chasing too few homes, and we desperately need a breather. Redfin said that more sellers are cutting home prices as housing demand softens, partly because of this sharp increase in mortgage rates. And it could be a few months before the actual effect of higher mortgage rates is genuinely noticeable. 

Will Home Values Go Down in 2022?

Should you wait to buy that new home until prices drop? Again, the experts say no, and I agree based on the metrics. One school of thought is that home prices have been artificially inflated the previous few years due to historically low rates and the pandemic. But not one single major real estate firm thinks prices will drop this year. Thankfully, we are starting to see a slowdown compared to last year’s unsustainable run. In 2021, according to the S&P CoreLogic Case-Shiller home price index, home prices skyrocketed to nearly 19%. To put this in perspective, the average appreciation rate in Sacramento over the prior 25 years (not including 2020 and 2021) was just over 8% per year. And this includes the Great Recession 2007 – 2009.

HERE IS A WONDERFUL TOOL provided by The Federal Housing Finance Agency to track appreciation in the US from 1991 to the present.

Rising prices have primarily been due to supply-demand imbalance, and I don’t see this going away anytime soon. Even with rates on the rise, we should see some fall off, but not significantly. According to The National Association of Realtors, the inventory of unsold homes was only 950,000 as of the end of March. According to NerdWallet Home Buyer Report, published this January, nearly 26 million Americans plan to purchase a home in the next 12 months. Given that between 5 and 6 million homes sold in each of the past five years, this doesn’t bold well for buyers. Again, we have too many buyers chasing too few properties.

These higher mortgage rates should take some much-needed steam out of the market, and experts agree that high demand and low inventory are here for the foreseeable future. Hopefully, this clarifies if you are like so many buyers trying to decide if they should buy now or wait. But, of course, whether you purchase a home in 2022 is a very personal decision and depends on your financial situation and the market where you live.

The above information is for educational purposes only. Guild Mortgage Company offers home financing only. All loans are subject to underwriter approval. Terms, conditions, and eligibility requirements apply.