Rising interest rates and low inventory are making a challenging real estate market even harder to navigate.
Housing remains one of the biggest problems in the area and that’s why Boston 25 News is “Getting Real” about this important issue.
Pete Bruce is trying to find a house to buy in Boston’s suburbs. So far, he’s put in five above asking price offers and has been outbid every time.
His realtor, Marie Presti of Stoneham, says competition is still stiff when it comes to buying real estate because there aren’t a lot of available properties. “At the beginning of the year what we saw is that the market didn’t slow down at all,” she said.
Presti added, “we had quite a lot of demand because the interest rate was low and we’ve been told for years the interest rate is going up, the interest rates is going up. And guess what? It did over the last several months.”
Last month, a 30-year fixed-rate mortgage went above 5% for the first time in years. A year ago, it was just a shade over 3%.
Higher interest rates make it harder to afford a property as the cost of borrowing becomes more expensive.
Still, Presti doesn’t expect that to affect prices at least in the near team because of the inventory levels.
She says the best gauge of whether a market favors buyers or sellers is looking at the supply of inventory and how many months it takes to turn over all the available properties.
“We were hovering back in January around one month’s supply,” said Presti. “That has to go over six months for it to convert from a strong seller’s market to a stronger buyer’s market... we’re not even at three months right now on average for greater Boston.”
Professor Peter Cohan of Babson College believes that as long as inflation remains at 8.5% the Federal Reserve bank will have “to raise interest rates a lot more.”
Cohan thinks the real estate market will be impacted by these increases. “Eventually what’s going to happen is that people are just not going to be able to pay the combination of the high prices and the high interest rates on the mortgage... my hunch is if mortgage rates were around 8%, that would have a pretty big impact.”
For now, owning a house with a white picket fence remains part of the American Dream. Boston University Laurence Kotlikoff thinks this still makes sense. “I would say it seems like house prices are really high, but rents are also high, and mortgages are still low relative to inflation, so this is still a good time to be thinking carefully about buying.”
But that doesn’t mean it’s easy to cross the finish line. Peter Bruce says this market is different than when he’s purchased homes in the past. “What I am finding is it’s a much tighter market. It hasn’t been easy trying to find exactly what I want in the area that I want.”
So, what should buyers and sellers do today?
If someone is considering selling a property, Presti says it’s better to list it sooner rather than later since more interest rate hikes are expected.
She says its good to spruce up a property but doesn’t recommend major renovations.
For buyers, Presti says not to bank on prices coming down soon and that if a property checks all the boxes, it might be wise to proceed. She says the concern is that if rates take their more hikes as expected, the property could become unaffordable.
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