Mortgage interest rates have increased nearly 3 percentage points since the beginning of 2022. Higher mortgage interest rates are a result of the Federal Reserve’s aggressive raising of the Federal funds rate. The Fed’s goal is to increase the cost of borrowing to reduce consumer demand. How will this impact the local real estate market?
Demand
It is nearly inevitable that demand will be reduced. Increased mortgage interest rates will price some buyers out of the market. Some buyers have also given up for 2022 and have stayed put or signed a lease. However, there are several factors that continue to drive demand in Greater Boston. The economy remains very h3 and salaries continue to rise. Relocation activity in the educational, financial, high tech, and life sciences industries has increased. In addition, rents have increased dramatically, which is motivating people to consider buying.
Supply
Inventory remains stubbornly low in Greater Boston. Owners with low interest rate mortgages are reluctant to sell and to take on a higher interest rate mortgage. New construction of housing remains very low, due to restrictive zoning regulations and the cost of construction.
Values
Although supply is still low, demand is shifting lower. The rapid rate of appreciation in the past year is not sustainable. According to an article in The Wall Street Journal from June 29, 2002:
Economists largely expect home-price growth to slow in the second half of the year as demand wanes due to higher borrowing costs.
“We continue to observe very broad strength in the housing market,” said Craig Lazzara, managing director at S&P Dow Jones Indices. “A more-challenging macroeconomic environment may not support extraordinary home price growth for much longer.”
