Rates matter.
We gave credit to the ultra-low rates when they were in the 2%-range for helping to create the frenzy. Likewise, higher rates will have something to do with the way the market turns out in 2022.
It’s not because the payment are so much different. When the rate changes from 3.0% to 3.85% on a $1,000,000 loan, the payment only changes $472 per month.
The change will be because of the effect that higher rates have on market psychology.
We’re not going to get a memo on the day when buyers decide that they have had enough.
We know what signs to look for – higher market times, declining SP:LP ratios, and a growing amount of active (unsold) listings – to recognize when the market conditions are adjusting, and it’s been quiet so far.
Harder to measure is how quickly the demand could subside.
With the quality homes fetching an average of five offers each (roughly), then for every sale there is probably 2-3 losers that are literally priced out or voluntarily quit the race. At that rate, the demand could be cut in half or less within a couple of months.
Add the war in the Ukraine, rates well into the 4s, and list prices starting at 10% above the comps, and you have all the ingredients needed for a slowdown. Because the market is so hyped up, there will be ample overshoot and the frenzy should last into summer. But everyone knows it won’t last forever.
Enjoy the next three months!
Rates Explode Higher
