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DSCR and Rising Interest Rates

There is growing concern among real estate professionals and economists that the Federal Reserve will raise interest rates this year as many as seven times. The first of these could come as early as March and could be a whopping one or two half points. St. Louis Federal Reserve President James Bullard is suggesting a full percentage point increase by July.

The purpose of the increases would be to curb inflation, which was at 7.5 percent in January, the highest it’s been in 40 years. The question on everyone’s mind is what will rising interest rates do to real estate?

 

3 Ways Rising Interest Rates Could Impact Real Estate in 2022

Real estate investors have enjoyed a healthy market for several years. Low housing supply and high demand for housing have driven up home prices, and historically low mortgage interest rates have meant that home buyers and investors have been able to acquire real estate capital at affordable prices. Could that change if the Fed does raise interest rates up to seven times in 2022?
The Motley Fool lists three ways rising interest rates could impact housing in 2022:

    1. Reduce buyer demand
    2. Slow down refinancing
    3. Decrease the rate of home price growth

 

In January, the average interest rate on a 30-year-fixed rate mortgage hit 3.22 percent. Since then, they’ve gone up to 3.92 percent. It’s likely they’ll go up even more if the Fed follows through with even one interest rate hike this year. Does that mean the real estate market will respond in a slowdown? It’s a bit more complicated than “higher interest rates equals lower demand” and downward pressure on pricing.

For starters, interest rates are not the only thing home buyers look for in deciding whether to buy or not. There are other factors. Nevertheless, we could see a margin decline in buyer demand.

Refinancing will likely be hit harder. It’s likely that we’ll see a spike in home refinancing in the next month or two and, as interest rates climb, refinancing will slow down. Homeowners, however, will try to lock in the lowest rate possible for a fixed-rate mortgage.

As far as home prices go, it is very likely that rising mortgage interest rates will put downward pressure on home prices. However, prices will likely continue to rise at least until equilibrium is reached between the inflation rate and interest rates if that is even a goal. Keep in mind that we’re operating on the heels of the fastest year-over-year home price increase in recorded history.

 

 

That period was from October 2020 to October 2021, which means price deceleration has already started.

There’s no doubt that an aggressive interest rate hike could have an impact on real estate, but let’s discuss realistic expectations. It’s Still the B