Ever since Covid, there’ve been non-stop bidding wars in the Real Estate market. That’s until this past summer in 2022, there has been a cool off thanks to the surge of rising interest rates. They have throttled home buyers with a significantly higher payment with all of the added interest. Meanwhile, the sellers are always expecting multiple offers just because of ‘low inventory’. 

During the crazy season with interest rates under three percent, home buyers would look at any property and submit an offer with escalation clauses as much as ten or even fifteen percent above the listing price. Emotions tend to drive buyers crazy. 

If anyone had said in January of 2022 that mortgage rates would go from under three percent to over seven percent, anyone and everyone would call that person insane. At this point, home buyers are just sitting back praying for rates to fall and sellers are just receiving lower than expected offers. 

Properties are just sitting for a significantly higher amount of days on the market: (DOM)

Prior to Covid, the average time a house in the DC area would sit on the market in the month of October in 2019 would be 31 days. Then in October of 2020 it trickled down to 28 days. This was from the surge of buyers and also lower inventory.  In October of 2021 it climbed up to 34 days on the market and in 2022 we have just seen it approach an average of 40 days on the market. 

But what causes this? Interest rates. All of us have already seen interest rates go up significantly throughout 2022. But this was coming. America is way past due on an interest rate increase. With all of the financial impacts due to Covid, it only expedited the inevitable. 

The interest rates were at all time low’s for nearly seventy years according to fedprimerate.com. And mortgage rates are not dictated by the prime rate but they surely are influenced by the prime rate. Right after covid, not only did we see a huge flurry of money printing that was supposedly going to help aid certain companies and and us all with economic relief due to the amount of jobs lost, we had also seen the prime rate come down as well as mortgage rates to all time low’s. 

But after all of that… All large companies and banks had easily seen something that was very close in the rearview mirror, a recession. So to cope with it, we had gotten a clear message from the Fed, everyone needs to start saving and stop spending. The fed had decided to kick up the prime rate by three quarters of a point consistently throughout the second half of 2022 and that really hit home buyers hard. Your mortgage payment today for a $400,000 loan would be almost the same as a $750,000 from two years ago. (Not counting the taxes, insurance, and any condo fee’s or association fees; just the P&I)

Inventory has also been an issue. Investors have entered into a new mindset over the last generation: buy and hold, buy and hold, buy and hold. This has so many financial and tax benefits to the investor, but too many liabilities to first-time home buyers. It causes inventory levels to fall, and by having less options to choose from, first time home buyers would just take anything they can get their hands on during the pandemic saga and now with interest rates over seven percent… unless they can really find a deal, they take their time.

According to BrightMLS, just for the DC market, in 2019, the amount of Units that Sold in the month of October was 802 properties. In October of 2020 that increased significantly to 930. In 2021 that decreased to 833. However, in 2022, that significantly went down to 576. This is for two reasons: Investors holding and higher interest rates.

The same applied to the Sales Price, however, it wasn’t as significant. If you look at the difference between the drop off in October 2021 as far as the sales price and October 2022 versus the number of Units sold, there is a drastic difference. This goes to show you that not all sellers are willing to take huge price cuts in order to sell. Some would rather just lease and wait until they see a reasonable market shift then sell.

But that leads to the question, will the fed continue to raise rates until we see them close to double digits?

As the fed raises rates that triggers the 10-year Treasury Rate, and that is what really drives the mortgage rates daily. At the beginning of the year, the 10-Year Treasury Rate was between 1.5%-2%. Prior to Covid it was right around that right. Between March of 2020 and the end of 2020, it was at all time low’s staying under 1%. Now it’s taken off going over 4% and this is significantly impacting the mortgage rates today.

This has also severed mortgage applications but more importantly refinances. In today’s economy, absolutely no one is refinancing, and that has put a lot of mortgage lenders out of jobs. During the Covid Season, Lender’s would see tons of approvals on their desktop. Now, they’re just happy to get a phone call.

All these signs surely point to a rate adjustment back down. As the good old saying goes, “What goes up, must come down”. A lot of speculators see the interest rates coming back down in 2023. This would open up doors for more job opportunities, a healthy real estate market in the spring, and a robust economy.