How Low Interest Rates are Impacting Affordability in the Housing Market
When the 2008 recession hit, Americans doubled their rate of saving almost overnight, from around 3.5% to over 7%. By 2012, the national savings rate was at 12%, and the economy was on the verge of stalling. As a way to entice people to spend, The Federal Reserve enacted a plan to keep interest rates lower for longer, prompting the longest economic recovery in history as a result.
The interest rates set by The Fed have impacted the housing market in a variety of ways—namely, reducing mortgage costs, stabilizing or increasing home values and generally encouraging home sales across the state.
Then, the COVID-19 pandemic hit, prompting average rates on a 30-year mortgage—America’s most popular loan option—to reach their lowest levels in more than half a century, according to Freddie Mac. These rates are expected to continue through 2023.
Another side effect of the crisis, the trend of working from home on a more permanent basis, opened up the housing market in areas that were historically less likely to be considered options due to commute worries.
These factors have caused the influx of buyers in the marketplace to increase dramatically, leading to a seller’s market and subsequent shortage of inventory in many neighborhoods. High demand and low mortgage interest rates have resulted in sellers raising the price of their homes by an average of 6% statewide.
With all this in mind, prospective homebuyers gauging the state’s housing market and looking at how much house they can afford should know a few things:
- Be patient—with housing demand in the mitten high, you should expect to search longer for the house they want. Don’t settle for anything less than your dream house, or it may cause regrets later on.
- Get pre-approved for a mortgage—interest rates may be low, but the process to secure a mortgage is still the same, if not longer due to demand. Take the steps to get preapproved for a loan, so you can close on a home that much faster.
- Save longer—while low mortgage interest rates make home buying in Michigan attractive in the long-term, be prepared to pay a higher overall price which, in the short-term, equates to a larger down payment than you might have expected.
- Learn to negotiate—buying in a seller’s market with high demand means you may get swept up in a bidding war. Brush up on best practices and tactics to prevent pressure-based situations where you’re in over your head.
- Work with a realtor—housing inventory is low right now, so if you haven’t had luck on consumer home search sites like Zillow or Redfin, consider working with a local realtor who can offer more exclusive listings within your search parameters.
Ready to start your home buying journey? Contact us today!
