By Nick Carlson, co-founder of Wilson Associates and president of the Greater Greenville Association of Realtors
Most people assume that recent Fed rate increases will automatically lead to higher mortgage rates, which will decrease demand and sales prices. Think again. There are larger national and local macroeconomic forces at play that defy conventional real estate wisdom.
The fact of the matter is, despite steady increases from the Fed, including one just last week, mortgage rates are lower now than they have been in the past year. How can this be? Mortgage rates respond to the inflation outlook. When inflation rises, mortgage rates generally increase, and when inflation looks to be headed downward, mortgage rates decrease. If investors feel confident that the Fed’s efforts to reduce inflation through an interest rate increase will succeed, mortgage rates will naturally continue to go down.
So before worrying about the next Fed increase, consider the idea that it could actually be good for the market and a sign that things are moving in the right direction.
Won’t higher rates make people less likely to buy now? Real estate sales are driven by supply and demand. Mortgage rates have disproportionate negative impact in cities experiencing population loss. However, cities such as Greenville, which have enjoyed great population growth, continue to have demand that outpaces available inventory. This scarcity of available homes creates competition and a sense of urgency on the part of buyers to get the house they want before someone else does, essentially ignoring rate shifts and giving sellers a sustained advantage in the process.
Greenville also continues to defy the notion that mortgage rates will keep people from buying higher-priced homes. While limited home inventory and increased demand have played a key role in helping Greenville’s sales prices outpace national data, it’s not just that people are coming here but where they’re coming from that has helped keep prices high despite rate increases. Many move to Greenville from markets with significantly higher real estate costs. A good number of these buyers are able to sell their previous houses for much more than the price of a house here, allowing them to pay cash for Greenville property and eliminating the need for a mortgage entirely. Furthermore, new residents who must finance still view Greenville prices as a comparative bargain, making them less likely to quibble over a few percentage points.
That said, there are wide variances in down payment and credit requirements, available rates, rebates and perks among local and national real estate and mortgage brokers. Shop for a lending partner as carefully as you shop for your next home and find an agent who has the finance relationships and know-how to get you not just the best price but the best total deal. There’s no time like the present.