Let’s take a guess, you have no interest in interest rates anymore, right? You’ve heard all about rates for the last couple of years and you are tired of it. They went up, they went down, they went back up again. Currently, rates are high and it’s impacting the economy in very intended ways. That’s right, what people forget is that the impact they have on the economy is the biggest reason why they are currently up.
The housing market skyrocketed in 2020 and 2021. Home prices, while maybe not at record prices, had doubled and in some areas, tripled in less than five years. That’s an outstanding increase but it was not sustainable, especially after what we learned from the housing collapse in the early 2000’s. The market had to be slowed down to protect the market and it’s done just that.
Interest Rate Movement
When the economy is going really strong, meaning home prices are soaring, sales are up and the job market is also strong, rates will have to go up. Why? Because all those factors mean that people can afford to keep buying homes which means prices will go too high too quickly and cause a drop in the market like we’ve seen before. Houses cannot be treated like stocks where you can double your money in a year and not care what the price is after that.
Home prices need to stay strong for the market to be healthy. Currently, with rates going up, the job market has remained strong and so have home prices. That’s why you have not seen rates drop significantly. Inflation is another culprit in this and even though the housing market has slowed down, inflation is not subsiding.
Impact On The Real Estate Market
A strong job market and consumer spending have kept interest rates up, along with the fact that housing prices are not going down. That’s right, despite a slowdown in the market, prices are still within 20% of their top value. That’s a significant sign that the market is healthy despite the higher rates and fewer sales taking place.
Currently, the market is healthy and showing several signs of improving in 2025. One of the key signs of that is the uptick in rent-to-own, assumable mortgages and other unique loan types that are helping buyers land their property. Sellers are willing to work with buyers now because the interest rates only value the lender and not the seller and certainly not the buyer.
Are Rates Going Down In 2025?
The short answer is yes. The Fed is expected to lower interest rates in 2025. However, there are two issues with that. The first is that the Fed is only expected to lower rates less than a point. That’s not going to deliver huge savings for many looking for a house, but it will open up more buyers to move forward. The other issue is that the rate hike will be spread out throughout the year to keep inflation at bay.
While this is a smart and proven strategy, it means that buyers will not see any significant savings between now and the next six months. The biggest savings will be towards the end of next year, but that may be a good thing for some buyers. To better qualify for a home loan, many buyers need to work on things and need time to make significant improvements.
Improving Your Situation
Increased interest rates significantly reduces the number of qualified buyers in the market. As rates lower, you may want to start improving your situation so that you qualify sooner than others. If you are able to purchase a home when rates are at 5.5%, that puts you at an advantage and gives you a jump start over anyone waiting for rates to get back into the 4’s. Use this time to focus on improving your income, lowering your debt and work on those credit scores as well.
