Interest Rates From a Historical Perspective
How inflation and rising interest rates might affect our housing market.
There’s been a lot of talk about interest rates lately, so today we want to talk about how they will affect the real estate market in 2022.
Inflation is essentially an increase in prices, whether that's for commodities, equities, etc. The CPI, or consumer price index, is how the government measures inflation. You can tell from the gas pump and stores that inflation is way up; the rate for March was around 8.25%. The Federal Reserve is shooting for a 2% inflation rate.
Mortgages drive a lot of real estate transactions; people can leverage money and pay a certain amount of interest on their loans. As interest rates go up, money costs more to borrow.
"History doesn’t always repeat itself, but it does rhyme."
The usual way to stave off inflation is to raise interest rates. That encourages people to save more and not borrow as much, which can cause a small recession. Historically, housing has continued to appreciate through recessions. The exception is, of course, the crash in 2007.
Since increased rates makes money cost more to borrow, the market may slow a bit. However, what we’ve seen in the past is that real estate stays strong while interest rates rise. History doesn’t always repeat itself, but it does rhyme. If you’re wondering what will happen because of these higher rates, the market has gone up historically. 2007 was a different case altogether.
We don’t know how these rates will affect the market for sure, but hopefully, this gave you some context. As a buyer, you need to remember that money will cost more, and you’ll be able to afford less.
If you have any questions about interest rates or real estate in general, feel free to call or email us. We’d love to hear from you.