RICHMOND, Va. (WRIC) – Rising interest rates appear to be cooling Virginia’s housing market. On Wednesday, the Federal Reserve approved a third consecutive hike of three-quarters of a percentage point, an effort to bring down stubbornly high inflation and falling consumer demand.
But rapidly rising interest rates are also increasing monthly mortgage payments for potential buyers.
That means buyers aren’t getting what they pay for, according to Virginia REALTORS chief economist Ryan Price.
“As these mortgage rates go up, a lot of people, especially a lot of first-time home buyers, are out of the market,” Price said.
According to Price, sales activity in August 2022 was down about 20% from the same month a year earlier. A trend that has persisted for several months, as a previously overheated housing market takes hold. Price predicts Virginia’s business activity will drop 15% in 2022 from 2021.
“It’s a pretty big change and it’s the biggest we’ve seen in over a decade,” Price said.
Meanwhile, median home prices continue to rise, up nearly 6% statewide last month, and inventories remain low, according to Price.
“There are some early indications that we have a bit of supply accumulation that is out there in the market. Homes are staying on the market a little longer than in the past,” Price said. “That being said, it’s still quite low compared to what a more balanced market would be.”
Price said buyers able to afford rising mortgage rates could benefit from less competition in the housing market, compared to the intense bidding wars that became commonplace at the start of the pandemic.
AJ Shriar, a resident who has just returned to Richmond, hopes to get a better deal by delaying his housing search for a few months. He rents while waiting.
“There is a good chance that prices will fall as interest rates rise. It’s not uncommon. Also, the inventory seems to be increasing,” Shriar said.
As a general rule, Price does not recommend trying to time interest rates. For those struggling to qualify for a loan, he said to focus on paying off your debt, broaden your search and adjust your expectations.
“I think it’s not a matter of timing with the rate. It’s more about whether you can find a home in this low-supply environment that meets your needs,” Price said.
While some fear a sharp economic downturn is near, Price doesn’t expect a 2008-style housing crash due to a few key differences. He said credit standards are tighter compared to 2008. Additionally, he said home inventory and unemployment rates remain low.
“While there may be a moderation in the market, a cooling, we think that’s a very different situation from the slump we had in 2008,” Price said.