The Massachusetts mortgage market barely noticed when the Federal Reserve finally moved the needle and rates rose to numbers not seen in a decade or more.
The Fed’s initial quarter-point rate increase last month deterred very few buyers or sellers from their spring plans. A few weeks later, as rates rise above 4.7 percent and show no signs of slipping back, Realtors report buyers are as aggressive as ever – and the spring market is just beginning.
Though it originally planned for a half-point increase on that first occasion, the Fed was spooked by the war in Ukraine and held to a quarter-point. That was the right call – a full .5 percent would have in turn spooked consumers. Better to slide in than cannonball.
The Fed now walks a tightrope now as it tries to hit a soft landing – raising rates enough to slow inflation, but not send the county into an economic tailspin and another recession.
Mortgage rates have increased 1.5 percentage points of the last three months, the fastest three-month increase in rates since May 1994, Freddie Mac’s Chief Economist Sam Khater said in a statement last week. As a result, the average buyers’ monthly payment has increased by about 20 percent from a year ago.
Clearly this will impact buyers’ budgets, but not enough to make an immediate difference here in Massachusetts. The inventory levels are so low that even if 5 or 10 percent of buyers drop out of the pool due to affordability concerns, there are still thousands of hopefuls looking at open houses every weekend. Sellers may see fewer offers in their bidding battles, but the war rages on.
Like the Fed’s attempted soft landing, there’s no way to know how high rates have to rise to slow the juggernaut of home prices in Greater Boston. In Freddie Mac’s example, what was a $2,000 monthly payment a year ago is now $2,400.
Unfortunately, all this does is shift buyers down from one purchase price point to another. Buyers may need to expand their search areas or criteria, but the same inventory constraints apply.
Barring any surprises – which is not a situation one can count on in 2022 – this year’s market is likely to remain hot, though probably slightly cooler than 2021. As Realtor Meg Steere noted in Cameron Sperance’s story in this week’s issue of Banker & Tradesman, the three properties she brought to market in the past week all received multiple bids. (Editor’s disclosure: One of those properties is owned by Banker & Tradesman Associate Publisher Cassidy Norton.)
Next year’s spring market will be much closer to “normal.” It will certainly more stable and balanced (unless there’s a major recession, or another world war, or any number of other unforeseen tragedies).
But for now, look forward to another wild ride.
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