In my 30+ years in the mortgage industry, I can say that spring has always been one of the best seasons to purchase a home. The warm weather draws out sellers and buyers both. More houses go on the market, and more people are there to buy them up … ordinarily. The last few years have been anything but ordinary, however.
The pandemic brought in historically low mortgage interest rates. That tends to be a good thing for homebuyers, but it also drives up demand because it makes the purchase more affordable for more people. The competition to buy has been especially fierce in Utah for a number of reasons. One, the pandemic brought in an influx of people from other states (because they could work remotely and our economy was stable and attractive). Two, Utah is about 45,000 housing units short of where it needs to be for our growing population. (Those are just a few of the reasons.) This means that:
Utah’s housing market has been scorching hot year-round — not just in the spring.
One factor driving up demand is changing, though. Mortgage interest rates are starting to increase as the nation recovers from the pandemic. This was expected, but what exactly does it mean for Utah’s housing market, and what does it mean for homebuyers? To answer those questions, I have to answer another one first.
Why Are Mortgage Interest Rates Rising?
If you’re like me, you’ve noticed your day-to-day living expenses have gone up significantly. Inflation is high, and when it’s high, the Federal Reserve — America’s central bank — takes steps to contain it by increasing the Fed Funds rate. Higher interest rates mean higher borrowing costs, which means people spend less. As a result, the demand for goods and services declines, which causes inflation to fall.
As a quick side note: The Federal Reserve does not set mortgage interest rates. The Fed Funds rate is different from a mortgage interest rate, but they typically move in the same direction.
So, when the Federal Reserve increased the Fed Funds interest rate, mortgage rates increased too. That ordinarily would translate to home sales slowing, but again, we’re not in ordinary times. With such a low housing inventory in Utah, and with people continuing to move here for employment opportunities, our housing market is not expected to cool down in the near term.
That gets us to our big question.
What Do Rising Rates Mean for Utah Homebuyers in a Hot Market?
Inflation, rising rates, population growth, low inventory, home prices, it’s all a lot to think about, isn’t it? As a potential home buyer, you should keep three things top of mind.
1. Expect competition to continue to be strong, despite the increased rates.
Some buyers will try to move even more quickly to lock in rates before they go up again, and when homes are currently on the market for only about six days in Utah, this could be a big challenge. You may need to be patient. Prioritize your financial goals and don’t feel rushed to act on something that doesn’t align with them.
2. Expect prices to remain higher.
Home prices typically stabilize when interest rates rise, but that’s not likely the case in this kind of housing environment. While the rates have taken a jump over what they were during the pandemic, they are not as high as they have been in the past. That means people will still buy, and as long as there is still strong demand, the prices of homes will most likely stay higher. Based on your financial goals, set and stick with a housing budget that you’re comfortable with knowing that housing is priced at a premium right now, and you may not get everything on your dream home wish list.
3. Look at the long-term.
Real estate proves over and over again to be one of the safest investments you can make. When you purchase a home, you’re building long-term wealth. If buying a home is part of your financial future, it is not a bad time to buy, even with increasing interest rates, as long as you’re focused on your goals and budget. Remember, you can refinance when mortgage interest rates eventually go back down.
This gets me to my last question.
What Can We Do For You?
We’re here to help you, whether that’s answering questions about the rising mortgage rates or helping you get the best rate available for your particular loan. Bank of Utah has been part of the community for 70 years. I’ve been part of the Utah mortgage community for over 30 years, and so have many of my colleagues. (That’s a lot of spring home-buying seasons, and a lot of every season for that matter!) We know the area. We’re familiar with the local economy and housing market. So, my last piece of advice is:
If you’re a home buyer and you’re feeling like you missed out on those historically low mortgage interest rates, don’t get disheartened, give us a call. You can find us easily online. We’ll be happy to explain anything to you and show you your options so you can head into spring with the knowledge you need about the housing market.
If you’d like to read more about the state of Utah’s economy and housing market, you can also check out the recap from our 2022 Economic Forecast.
Linda Rose has worked in the mortgage industry for over 30 years — 25 at Bank of Utah. She enjoys working with customers to provide the best loan that fits their individual needs.