RISING RATES AND THE COLUMBUS REAL ESTATE MARKET

Since 2020, the Columbus real estate market has been extremely challenging, to say the least. The demand is high, but the supply is not. The supply imbalance has been hardest on buyers of lower-priced homes (where inventory is thinnest).

With current economic conditions so murky, it’s hard to say whether or not things will get worse before they get better.

On one hand, inflation is rampant and the only real tool the Fed has is the blunt instrument of raising interest rates to hamper growth. The Fed has signaled multiple rate hikes this year. Rising rates slow down demand and thus inflation.

On the other hand, the 2/10?yield curve is at/near inversion, signaling a potential recession in the future. The question among investors is, “will?the Fed actually raise rates as much as they say they will into a recession?”

On the other?other?hand, the Fed says it’s watching the 3-month 10-year yield curve, which is contradicting the 2/10s and is nowhere near inversion.

While this is an over-simplification of the yield curve, the point is that it’s really hard to KNOW for sure what rates will be and how the real estate market will play out over the coming year or two.

Here’s what we DO know.

• The Fed says it will raise rates six more times in 2022 and 3 times in 2023.?They have become even more hawkish and are signaling that they will have to be even more aggressive with reducing their balance sheet.?They must get inflation under control.
• Real Estate is an excellent inflation hedge.
• Homeownership is one of the best ways to grow real, lasting wealth.
• Rates are still relatively low and are actually normalizing. In the 80's and 90's,?buyers would have LOVED a 5% interest rate.
• Inventory is still extremely low. Builders literally cannot build homes fast enough, and that’s not going to change meaningfully anytime soon.

The Columbus, Ohio area is in high demand, and lots of people will be moving here in the coming years.Knowing these facts, how should buyers and sellers think about the current market?

• There’s a saying that comes to mind, “The best time to buy a home is always five years ago.” Now, one could certainly say that perhaps that didn’t hold up in the late ’00s, but?most?of the time it is absolutely true. Most of the time, home values go up, and that’s why real estate is such a powerful way to build wealth.?The point is, that interest rates and home prices will likely be higher in the future, not lower.

The best time to buy a home is always 5 years ago. ~Ray Brown

• So, does it make sense to “bite the bullet” and buy now even when prices and rates?seem?high? It’s understandable to be nervous about buying while everyone is talking about how high prices are.
• Whether or not?you personally?should buy or sell a home now will always depend on your own goals and situation, but, generally,?I think it is safe to say that it makes sense to buy before rates and prices rise further.
• As Fortune magazine recently noted, “a borrower with a $500,000 mortgage at a 3.11% rate would have a monthly mortgage payment of $2,138. If the rates top 4.5%, the payment would reach $2,533 — nearly $400 a month higher. Even on smaller mortgage loans of $200,000 or less, a mortgage rate hike as little as 1% can add up to $1,000 in additional mortgage payments over the course of a year.” Rates have already surpassed the 4.5% rate noted in that quote.
• Of course, saying “buy now” assumes that there are homes to buy. It does take a saint’s patience and perseverance to be a home buyer right now, but it is absolutely possible to buy a home in Columbus, Ohio.
• In that respect, rising rates are actually a good thing. Higher rates will cool the raging housing market and hopefully normalize the situation. Plus, if you’ve been temporarily priced out of the market or you’re still trying to save money to buy, your savings will benefit from a high saving rate.

Does It Make Sense To Sell Now If Prices Will Go Higher?

For homeowners thinking about selling in the next year or two, it probably does make sense to go ahead and sell your current home. You can get a great price now for your current home and buy something that’s a better fit while rates are still relatively low. Some homeowners are taking advantage of the situation to buy a bigger home or to buy new construction. Buying new construction will make even more sense as supply chains come untangled and builders can finally build more homes.

Let’s say you know you need to sell, but you wait until later this year or early next year when rates are 6-7% (potentially). You will still likely have equity and make money on the sale, but your purchasing power will be significantly eroded by higher prices and rates.

The best thing for homeowners to do is to sit down?now?with an experienced real estate agent to discuss their current and future real estate needs. A professional can help you run the numbers and figure out what makes the most sense for you and your own situation. Our goal is to educate you with facts so that you can make the best decision for your own needs.