Why Are Interest Rates Rising?

The government has been buying down interest rates for about the past 10 years. In a ‘healthy’ economy interest rates are about 6%-8%. When the market crashed, the government started buying down rates to encourage it to come back. Surprisingly, about 2/3 of jobs actually depend on the housing market. This is why so many folks lost their jobs when the market crashed.

In 2016, home values went up about 30%. This is an unsustainable increase in home values. Those of us in the industry see what is going on, and often coming, much sooner than the government does…and even then they will wait to do anything.

By 2018, home prices were still steadily increasing, and the government was still buying down rates to unprecedented numbers. Those of us (Realtors & Lenders) who have been around the block a time or two started talking about how interest rates would start going up soon to balance up the market, otherwise we would be flirting with inflation. When 2020 hit, we all thought, “ok, this will balance out the market. It will be a slower year, but that is ok…. the market will balance out.” This worked for about 3-4 weeks, and then it was like the market drank a Red Bull mixed with some Mt Dew, and took off like a single mom with a shot at Jason Momoa. Interest rates (bought down by the government) were still insanely low, and comps didn’t matter as people were making offers way above market list price AND bringing in $$$$ to cover a low appraisal difference. Just so everyone knows… prior to 2020, covering a low appraisal gap with extra money was unheard of! Still the government continued to buy down interest rates…. short term gains with long term consequences. Fast forward to 2022, and the housing market needs a correction.

If interest rates had gradually (.25 to .5 point) gone up over the past few years, we might still be where we are at, but prices would be lower and it could have been absorbed. Unfortunately for all of us, that is not what happened. Finally, the government stopped buying down the interest rates, but honestly, it is a little too late. Home prices are not going to tank, but they are leveling off. Many homes are making it through the weekend without a dozen offers, and crazy terms. Homes are going pending for *GASP* listing price! This is all a good thing, but it is going to hurt to balance it all out.

I have said it before… the economy is like a bathtub. You want to get in and have enough water cover your good bits, but not so much that it floods over the rim when you get in. Well, we are flooding the whole room, down the hall, and mom is screaming at us. Water needs to be let out, and clean up needs to be done.

Rates have gone up for home loans, car loans, and yes, even our credit cards.

Home prices have gone up so much in the past year that people are going to see that reflected in higher property taxes. This is going to increase their mortgage payments as property tax increases are reflected in escrow holds from their monthly payment. Home insurance costs will also rise as it costs more to insure what you currently own.

This is a breakdown of what it means when the Feds/government start selling those back.

You can also holler at me with any questions.