10 July, 2013

Rising Interest May Force Hesitant Buyers into the Market

Interest rates are at a two-year high and heading higher. The recent spike in rates has left buyers and sellers alike wondering how higher mortgage rates will affect the real estate market. 

Rising mortgage rates may finally be forcing many hesitant buyers into the market.  NAR's Pending Home Sales Index (PHSI), which is based on home purchase contracts, in May reached its highest level since late 2006.  NAR also announced it was upgrading its price forecast for 2013.

It appears some of the rise in contract signings could be from buyers wanting to take advantage of current mortgage interest rates before they move higher. This implies a continuation of double-digit price increases from a year earlier, with a strong push from pent-up demand.
Home prices are not going down any time soon unless the economy or other fundamentals change the direction of the market. Although interest rates are at a two-year high they still low in comparison to previous years.
As inventory levels have dwindled over the past year, the growing ranks of buyers have helped propel dramatic price increases. As long as our inventory remains low and demand is high, interest rates should not have a meaningful effect on the market especially given that a significant number of offers in our area are cash offers.  Multiple offers will continue to be the norm although the total number of offers received on a listing could decrease.
For the first half of 2013, the median sale price increased 25% for Palo Alto (from $1,726,000 in 2012 to a record high of $2,150,000), 15% for Menlo Park (from $1,325,000 to $1,525,000), and 12.5% in Atherton (from $3,200,000 to $3,600,000).

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