We are all well aware that, in an all-out war to curb runaway inflation, the Federal Reserve raised interest rates 11 times starting in March of 2022. This historic reversal in rates resulted in mortgage rates swinging from the historic lows we saw in 2021 post COVID to near 20-year highs by late October of 2023.
Historically, rising mortgage rates make housing less affordable and serves as a drag on demand. Lower demand from home buyers means homes do not sell as quickly and inventory, the number of homes available for sale, grows. Growing inventory eventually results in an imbaiance between supply and demand, an imbalance that is usually corrected by declines in price.
Given the historical trend, why is it that inventory levels are still near historic lows?
While higher mortgage rates succeeded in softening some areas of buyer demand, it did not impact all homebuyers. In fact, in 2023, baby boomers, the majority of whom do not have a mortgage on their current home, were once again the largest home buying generation, having been replaced by millennials when rates were low. If you don't have a mortgage on your current home, mortgage rates are not really a deterrent.
What impact have higher mortgage rates had on inventory? While softer buyer demand typically allows inventory to grow, the most recent move in mortgage rates had the opposite effect. Many existing homeowners became hesitant to give up their historically low mortgage rate and elected to stay in their homes longer than they otherwise would. As a result, inventory failed to grow substantially and home prices continued to increase, albeit at a slower rate.
While you can put off moving for a little while, life happens; and, the initial hesitancy we saw in some sellers with low mortgage rates to list their homes has now waned. In fact, new listings taken in the Charleston MLS were up 23% and 36% respectively in January and February 2024 compared to the same period in 2023. While this boost in new listings will increase inventory in the short term, each one of these home sellers is also a home buyer. As a result, once these homes go under contract we expect to see a wave of increased buyer activity.
In addition, with mortgage rates expected to decline starting mid-year, many buyers sidelined by higher mortgage rates are just waiting for a chance to jump back into the market. This surge of added buyer demand could quickly swing the market back to a seller's market, with multiple offers and rapidly rising home prices.
Buying or selling a home is a complicated process. As a Carolina One Real Estate agent, I am here to help you navigate all the hurdles that will inevitably pop up and to use the expertise and resources at my disposal to help you understand the market and achieve your individual real estate goals.
