Rising Rates and Rising Prices

Later today the Federal Reserve is expected to raise interest rates which will be the first increase for 2018, but the sixth time since December 2015.  I’ve had many conversations recently about how the federal funds rate impacts mortgage interest rates.  While I’m no expert on interest rates, I’ve learned that the mortgage rates are driven more by what happens on Wall Street than they they are by changes in the Fed’s rate.

The current Federal funds rate (before today’s possible increase) is 1.43% and when the rate hikes started 2 .5 years ago, it was at 0%.  Looking at that same time period, mortgage rates were at 3.96% in December 2015 and are currently at 4.33%.  During that time, they have fluctuated between a low of 3.44% and a high of 4.33% which happens to be the current rate.  While mortgage rates are currently the highest they’ve been since April 2014, they have not increased in direct proportion to the Fed rate.

All that being said, it is widely expected that mortgage interest rates will continue to rise as the economy grows.  And higher rates add further pressure to the already rising real estate prices, which have increased approximately 10-14% since last year in the Charlotte area.  In the past few years, we’ve seen many buyers who have been waiting for the right property only to find themselves increasingly lowering their expectations due to rising rates and prices.  That house that they almost made an offer on last year, but didn’t because it was overpriced, is now out of reach and would be a great deal today.  New, similar listings that hit the market are priced even higher and are still selling.

At some point, the rate at which prices are rising will eventually slow as inventory finally begins to increase.  But that doesn’t necessarily mean that prices will fall, like they did from 2009-2011.  (During that period, call the Great Recession, it was the first time in history that real estate prices declined nationally.)  So buyers would be wise to consider whether or not waiting is really the best decision.

Even if real estate prices flatten out, mortgage rates are still historically near all time lows and are likely to go up.  Consider that a 1/2 point increase in mortgage rates reduces the buying power for a $500K buyer by $30,000.  This means that if rates were to go up by 1/2 point, if the buyer wants to keep her payment the same, she can only buy a $470K home.  The rising real estate prices further exasperate the issue.

To see the monthly stats on interest rates and home prices, check out the Stats section of our website:

Here’s a quick summary of the single family stats in Mecklenburg county when comparing February 2018 to the prior month and the same period last year:

  • Homes sales are up 3% from last month but down 1% from last year.
  • Average sales price is down 1% from last month but up 12% from last year.
  • Median sales price is up 5% from last month and 14% from last year.
  • Average price per square foot is even from last month, but up 10% from last year.
  • Average time on market is up 7% from last month, but down 14% from last year.
  • Pending sales are up 50% from last month, but down 9% from last year.
  • Supply is up 16% from last month, but down 12% from last year.
  • Mortgage rates are up to 4.33% from 4.03% last month and 4.17% last year.
  • Average house payment is up 3% from last month and 14% from last year.





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