There’s been a lot of talk in regards to what’s in store now that the Fed raised the short term rate by 3/4 percent.   Of course some say that a recession could happen and that housing prices could fall.  I can’t say about a recession, but an economic slowdown usually isn’t good for the overall economy, except in the current situation where inflation has been out of control for a couple of years.

The government needed to slow the inflation rate and their most powerful mechanism is raising short term interest rates.  I think the Feds move was probably a smart move because the recent small increases were not having an effect on slowing the economy.  Now with the 3/4 percent increase, I believe they have accomplished what they were setting out to do.  Of course, they won’t announce that for a few months after they analyze the effects, but I can say in the short couple of weeks, there has definitely been a slow down.  Many loan companies are announcing fewer purchase loan application. Refinance applications are non existent and in 2-5 weeks the bank may even reduce their interest rates as the Fed starts to drop hints that there will be no more increases.

As for my thought on housing prices….  I’d normally think that with the jump in interest rates, that will lead to a glut of housing inventory coming to market with no buyers to buy them.  That I don’t think will be the case.  So far in 2022, the number of house sales is already down by some 16% locally compared to last year.  Prices have continued to increase for housing (both for rentals and purchases) in spite of the interest rates. That is because there’s been less inventory.   The remainder of 2022 is supposed to be fewer sales still.  They are predicting 2023 will be down an additional 11%. At first glance, fewer sales could mean housing inventory building for sale and eventually price declines.  I think what is more likely to happen though is that there will NOT be a big inventory increase or glut in homes because home seller (unless they have to move) will not be listing their homes for sale – why would they if they are giving up a 3.5% rate for a 6% rate?

Moving forward I expect less home sales this year and this will continue into next year, but I don’t predict a home price decline.  Sellers just won’t list their homes for sale at the same rate as previously.  So, less sellers means less inventory for a buyer to purchase causing the market to become more neutral and prices hold or still increase.