Compared to this time last year, there are 55% fewer homes for sale nationally. Some experts have referred to the work-from-home trend as the culprit, while others point to low-interest rates. Determining the impact of the pandemic on migration trends is impossible to calculate at the moment, but the effect of interest rates is no mystery.
On January 7, 2000, the average 30-year fixed mortgage interest rate (30y FRM) was 8.32%. By the end of 2001, the Dot-Com Bubble had popped, with most technology stocks losing all of their value. Unlike today, the Fed wasn't as aggressive with interest rates, and the average 30y FRM on July 11, 2003, of 5.5%. Rates climbed to 6.63% on July 24, 2008, before a steady drop in rates to 3.35% on May 2, 2013. Between January 2014 and January 2019, rates stayed around 4%, with a low of 3.42% in October 2016 before peaking at 4.94% in November 2018. Home prices decreased, while inventory increased during the higher interest rate periods. Since 2018, mortgage interest rates have been on a sharp decline, bottoming out at 2.65% on January 7, 2021. The only increase in home inventory since 2018 occurred during a brief spike in rates to 3.65%.
The City of Bend is looking at adding more property to the Urban Growth Boundary to satisfy the buyer demand. Any benefit from increased UGB will be years away and in a different economic climate as with any development. At the moment, fewer and fewer homes are available with every passing week. With the Senate passing a $1.9T (Trillion!) COVID Relief Bill, the current trends are likely to continue. Some economists predicted that interest rates in 2021 would rise to break 3% but stay below 3.3%. Considering rates on March 4, 2021, are already at 3.01% for a 30yr FRM, the estimates may be low. Consumer Price Index rose 0.4% in February, with gas prices leading the charge with a 22% increase in pump prices since January. As inflation increases, the Fed has very few tools at its disposal with the overnight bank funding rate near zero.
The trends show that mortgage interest rates are a significant factor in the dynamics of the housing market. As interest rates climb, expect inventory to rise.
Advice for buyers: interest-rates are still at historic lows, giving you incredible buying power. When you find the right property, there is no reason to wait! But, when rates rise, more inventory accumulates, and prices drop.
Advice for sellers: If you plan to sell in 2021, there may not be a better time than today. Homes are selling rapidly, many with multiple offers. Trying to time the market is a dangerous game, and while it could get hotter, rising interest rates could slow the buying frenzy. With all of the variables, it is impossible to say what the market will do this fall. Strike while the iron is hot!
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