Bash and Co. Sotheby’s International Realty: The Fed interest rate hike- what does it mean for the housing market?

On Wednesday, the Fed hiked interest rates by three quarters of a point, for the third time, in an attempt to slow down inflation. If you pay attention to National news, the sky is falling, and the end of days is officially underway.

It would be good to share some additional information regarding the Kansas City metro housing market for a different perspective.

Currently, interest rates are hovering around 6%, which is almost double compared to what we were experiencing at the end of 2021.

According to Lending Tree, if you took out a loan for $300,000 at December’s rate of 3.11%, your monthly payment would be about $1,283. Today’s rate of 6.02% results in a monthly payment of $1,803 for the same loan amount. Plenty of buyers will not be interested in spending an additional $520 per month to buy a house.

The immediate effect is fewer buyers resulting in downward pressure on pricing. If you have fewer buyers, you have less demand.  On the other hand, the Kansas City metro has a significant inventory shortage. In August of 2021, the KC metro had 1.4 months of supply, while this August, the inventory increased to 1.5 months. A balanced market is defined by 6 months.

Year-to-date, this shortage has resulted in pricing remaining somewhat stable. Homes are not selling in 24 hours with 8 offers and yet sales are still taking place. What we are seeing is that appraisals and home inspections are happening again. There has been an extended period of time over the last year and a half where both appraisals and inspections were being waived in order to get a deal done. Buyers are beginning to feel more empowered to negotiate, which brings the market into a more balanced state, also referred to as a “normal” market.

When one considers that the average home price in Kansas City jumped 11.4% in August, year to date, it becomes clear why the slowing down of prices is necessary. The average home price in 2021 was $302,406, compared to $337,014 this year. As you can see, the first two rate hikes had little to no impact on pricing. However, pending sales year over year for August were down 9%. Less sales are happening while prices are not affected…yet. The Fed is hopeful that pricing will begin to come down.

Humans are a strange group. We become accustomed quickly and forget more easily than we would like to remember. Returning to a normal market will be good for the housing market overall. The levels of appreciation are not sustainable and are bad for overall homeownership.

While the pricing of homes will eventually be impacted, the shortage of inventory, the number of people relocating, and the overall desirability of a more stable region should assist Kansas City in weathering the interest rate increase.

What should you do if you are considering selling your house or wanting to buy? For sellers – your house needs to be staged and in perfect condition. The days of throwing your house on the market with your sisters best friend who just started their real estate career are over. You need to hire a full-time professional who has a proven track record and strategy. Staging is always important and in today’s shifting market, it is a necessity. You will want an agent who is able to navigate inspections and appraisals. Getting your home under contract and to the closing table requires skill and experience. Lastly, be cautious of your pricing. Price for where the market is headed, not where it has been.

As for buyers, the lack of inventory is going to remain an issue. Sellers who are locked in mortgages at 3% will not be selling to move across town at a 6% interest rate. Relocation and life changes will be the more likely sellers. Finding an agent who has the network to find the off market homes is going to be more valuable than ever. I happen to know a whole company of those kinds of agents. Don’t stress about the interest rates, perhaps instead locking into a 3 or 5 year ARM (adjustable rate mortgage) and then refinancing when the rates become more favorable.

One thing I know for sure is that if you listen to the bad news of the media, you will have a less enjoyable overall life experience. This goes for house hunting, house selling, grocery shopping, crime and everything in between. My attitude always seems to be better when I don’t start my day off with what is wrong in the world. I suggest you do the same.

Bash & Co. Sotheby’s International Realty is an innovative full-service residential real estate brokerage that leverages the latest technology to serve clients in emerging, established, and luxury neighborhoods across the Kansas City area. Follow them on Instagram here and on Facebook here.