The head of Stark Company Realtors in Madison argues in a recent analysis that rising mortgage rates are “a long term positive” for the housing market.
“Do not believe the narrative that rising mortgage rates are ruining the housing market,” company President David Stark wrote in a summer report. “The truth is just the opposite. Today’s rates are not only low by historical standards, they are about where they should have been all along.”
He highlights efforts by the Federal Reserve to combat rising prices in response to “post-pandemic inflationary pressures.” These moves have led mortgage rates to rise from around 3 percent at the start of 2022 to over 6 percent several weeks ago, he wrote.
Despite the rapid increase, he argues it’s more important how high the rates actually go, rather than how quickly they change. He says the change, while abrupt, is “finally allowing the market to embark on a period of normalization and healing, perhaps ending over a decade of imbalanced shortages, price increases, and frustration for many buyers.”
Stark notes that 30-year rates were at historically low levels for the past two years, even lower than during the 2007-2011 recession. He says many in the real estate industry believe that rates were “kept too low for too long” in 2020 and 2021, disrupting the balance between supply and demand. That led to higher prices, with lower rates giving buyers more purchasing power.
“The key takeaway here is today’s rates are not too high,” he wrote. “Yesterday’s rates were too low.”
He predicts that mortgage rates may continue to rise in the near future, but will stabilize between 5 percent and 6 percent in the long run.
Stark also says the idea that higher prices and mortgage rates have made housing unaffordable is “another myth that needs to be dispelled” — at least in the south central Wisconsin market. He acknowledges rising rates will lower purchasing power for buyers “who want or need” to get a mortgage. And some may “drop out of the market” due to these trends, he adds.
“However, while the competition may have thinned, we still have much more demand than supply,” he wrote. “Our agents report that on the whole, not much has changed with rising mortgage rates. The remaining buyers seem undeterred, and competition, while somewhat reduced, is still brisk.”
He argues that if housing was truly unaffordable, that wouldn’t be the case. Because housing “remains a fairly scarce resource” in relation to demand, he says prices won’t be going back down anytime soon even with higher mortgage rates.
See the full analysis here: https://www.wisbusiness.com/wp-content/uploads/2022/07/Newsletter-Summer-2022.pdf