How Will Changing Mortgage Rates Effect Your Home Purchase
How Will the Omicron Variant Affect Mortgage Rates?
How will the Coronavirus affect the real estate market? Financial experts have been asking this question for the past 12 to 18 months.
It seems like we’ve dodged two bullets with the original outbreak of COVID-19 and the Delta variant. But, the emergence of the Omicron variant has real estate professionals wondering how the market and mortgage management companies will perform.
If history is any sort of teacher, we should be okay as Omicron starts to hit the United States. Of course, no one has a crystal ball, but it helps to take a look at what’s going on in the market to see where conditions are most likely to head.
That’s exactly what we’re going to do today. We’re going to go over how we think Omicron is going to affect real estate and mortgages as the holidays approach and we move into a new year.
How COVID Is Affecting Current Mortgage Management
Since the spring of 2020, when COVID first came to America, residents of the U.S. have been expecting to see a correction in the real estate market. Mortgage rates had been low, and prices had been high for several years prior to the initial COVID outbreak in 2020.
Since that time, most financial and real estate professionals have been “waiting for the other shoe to drop.” Many thought that if a correction hadn’t happened yet, COVID would be the thing to bring it on for sure.
We know now that we’ve seen the exact opposite happen. Mortgage rates are the lowest they’ve ever been and housing prices seem to be the highest they’ve been since pre-crash America. And this market has held up through both the initial COVID-19 outbreak and the Delta variant.
Essentially, the U.S. real estate market has been “COVID-proof” up until this point.
How the Omicron Variant Will Affect the Market
With the Omicron variant beginning to produce more COVID cases, experts wonder how this newest dose of uncertainty will affect the real estate market. Real estate professionals were expecting mortgage rates to dip because of the new variant. But, U.S. Residents were beginning to brace for increased costs of home ownership.
What we’ve actually seen over the past week is a slight increase in the mortgage rates. As of December 3, 2021, mortgage rates in the U.S. Averaged 3.11%. In December 2020, that number has been just 2.71%.
Mortgage professionals say that the rate has been on an overall upward trend since September 2021. And, although the rates have had minor ups and downs during that time, we’re still continuing to see a steady climb.
It’s easy to think that Omicron is going to send the real estate market into a skid. Especially when you look at what’s happening in the stock market.
So far, the stock market has dropped significantly in response to COVID’s Omicron variant. The S&P 500 fell 2.3% on Black Friday making it the stock market’s worst day since February.
The stock market continued to fall another 1.2% after the first outbreak of Omicron.
What’s Causing Higher Mortgage Rates?
Uncertainty is never a good thing for the market. And, unfortunately, that’s exactly what the Omicron variant brings. During uncertain times like these, investors experience what’s known as a “flight to quality.”
This flight to quality means that smart investors will seek sounder, more stable investment options. Usually, this means liquidation of real estate assets and a transfer of funds into more “secure” investment options. These secure options are usually U.S. Bonds and Treasuries.
Bonds are a historically safe and low-risk investment vehicle. They provide much-needed stability in unstable times. They can also be instrumental in showing us what will happen with future mortgage management during these times.
Like most investment vehicles on Wall Street, bonds and mortgages play off each other. The two financial instruments have an inverse relationship. As the price of bonds goes down, mortgage rates go up and vice versa.
The Federal Government Gets Involved
In 2020, however, this wasn’t the case. When COVID hit at the beginning of last year, the Federal Reserve took steps to make sure the economy could weather the storm.
Federal Reserve officials made sure to “prop up” the financial market by increasing their quantitative easing measures. The economy was also helped by the stimulus money provided to American citizens.
Most Americans received a total of $2,600 over three payments. The idea from Capitol Hill was that money would go back into consumer goods. As a result, buyer sentiment and the American economy would remain bullish.
Before the Omicron variant hit, the Federal Reserve chairman was beginning to ease up on the Fed’s financial measures. Mr. Powell stated publicly that he was going to slow down on the government’s purchase of U.S. bonds. He felt comfortable doing so because he saw signs that the U.S. The economy was starting to stabilize.
But, Omicron is changing all of that. Naturally, everything is subject to change. But, U.S. Bond analysts are cautiously optimistic about the health of the economy. They believe the market will continue to transition naturally and the news concerning Omicron won’t have much effect.
But, that’s not a guarantee.
How This Will Affect Real Estate
Based on what experts and analysts are saying, we’re going to see mortgage rates creep up. In fact, Redfin noted that home buying was the slowest it’s been all year during the week of Nov. 28.
This slowdown could be a result of Omicron or a result of the holiday season. It’s too early to tell.
Homebuyers are still buying and inventory is still scarce. Another data point found by Redfin shows us that there could be as many as 100,000 fewer listings in 2021 than there were in 2020. But buyers will still be lining up to buy those homes.
Redfin believes there will still be new listings in 2022, but the buyers who are lining up now to buy may still keep the 2022 market very competitive. This should remain true for at least the first quarter of 2022.
Experts are saying the residential real estate market will be more resilient than we expect. This is due, in part, to how the market has performed through the past two COVID outbreaks.
Inventory is going to remain scarce, but prices will continue to grow. But, the growth will begin to slow compared to the past year or so.
COVID Lifestyle Affecting the Housing Market
Another reason the housing market will still continue to remain healthy is because of quarantine protocols. Economic experts in the real estate field believe we are more equipped to handle the COVID outbreak this time around.
As a result, there won’t be a government or business shutdown. In 2020, the shutdown actually helped the real estate market. The shutdown caused a sharp spike in the price of houses.
When the shutdown occurred, it caused a “frenzy” in the residential real estate market. This increase in buying activity caused an increase in housing prices that hit the double digits. Prices will continue to grow but not at the same rate.
Another reason why the real estate market will remain healthy is that the home selling and buying process has already adjusted to the COVID world. Agents have been able to perfect the art of giving virtual tours and selling real estate remotely.
This should ward off any paralysis or uncertainty home shoppers may have due to Omicron. In fact, Omicron may wind up making the real estate market even hotter.
The new variant may require people to continue to work from home. With returns to the office being delayed, people will want to shop for a home that accommodates their remote lifestyle.
People may choose to buy larger houses or relocate to more desirable areas.
The Commercial Market
The Omicron variant is affecting commercial real estate as well. Agents saw the demand for office space drop to its lowest rates yet this year during the month of October.
The highest demand for commercial office space came in August 2020. Since that time, demand for new office leasing has dropped close to 30%.
Preparing for the New Market
Mortgage management may not look that different in 2022. We should see more of the same upward trend in the housing market. It seems like buying will continue to remain hot.
Rates may go up a little bit, but homebuyers will still be lining up to buy the house of their dreams. If you’re looking to apply for a mortgage, Contact Mortgages for Champions today. We’re more than happy to help on your journey to home ownership.
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