Local experts say rising interest rates affected the market

Cookeville – To buy or not to buy? That is the question facing those studying the housing market or dipping their toe in the prospect of owning a home. 

For many, the American dream of owning a home has been sidelined, existing only in the perpetual queue, and the reality of renting has entered the chat. Over the past two years, rising interest rates and higher home prices forced many Americans to ditch the dream, at least for now.

Mike Brady (Brady) of Highlands Elite Real Estate and his brother Mark work together in the realty game, and they have seen the struggle firsthand.

“Interest rates have slowly come down over the last month or so,” said Brady. “But, with that being said, I do feel like interest rates for the last two years have affected the market. Buyers and sellers have had concerns about buying or selling because of such a drastic increase in the interest rate from 2021.”

In 2022, the duo sold 68 units. In 2023, only 41. The average cost of a home in the Upper Cumberland (UC) region was $323,055 in 2023, up 1.03% from $318,887 in 2022.

According to Brady, 2,646 units were sold in the area in 2023, down from 2,931 in 2022. Interest rates said to “fight inflation” have increased, including a huge increase in May 2022, from 2.7201% to somewhere between 5.25 and 5.50% at the end of 2023. 

The Federal Reserve says interest rates may range from 4.25% to 4.5% by the end of 2024.

According to an analysis by real estate platform Redfin, home prices are up 20% since Joe Biden took office in 2020. Mortgage rates, high prices and low supply dynamics have priced out buyers looking to own a home.

There does seem to be some good news. All indications point to a slight improvement in the current market. Redfin predicts listings will climb, mortgage rates will fall to about 6.6%, and prices will drop 1% in 2024.

“In Nov. 2023, U.S. home prices were up 3.6% compared to last year, selling for a median price of $408,537,” according to a housing overview by redfin.com. “On average, the number of homes sold was down 6% year over year and there were 363,048 homes sold in November this year (2023), down 386,327 homes sold in November last year (2022). The national average 30-year fixed rate mortgage rate is 7.4%, up 0.6 points year-over-year.”

One of the primary struggles for the housing market is elevated mortgage rates and consumer price increases. The latter may delay the expected interest rate cut by the the Fed in March. According to an economist poll by Reuters, the Consumer Price Index (CPI) rose 3.4% in the 12 months through December 2023.

In the UC, inventory for new homes is low. Brady said high interest rates are the problem.

“Inventory is still low by comparison,” said Brady. “I attest this to interest rates. People don’t want to list their homes with a locked-in low-rate mortgage compared to what they would have with a new mortgage.”

People are fighting for every dollar. 

“The prices of homes haven’t changed much compared to 2022,” he said. “I am seeing a little more negotiating on a sales price. Market conditions changed in 2020. That’s when I saw a big change in prices in the Upper Cumberland.”

Will the market rebound in an election year? Brady thinks so.

“I feel like the market in 2024 is going to be better than the last two years,” said Brady. “With interest rates coming down and stabilizing, it will increase activity for buyers and sellers that have been on the fence to move forward.”

As mortgage rates drop, which seems to be the trend, housing prices will too.

“Listings will rise, and prices and rates will fall,” Daryl Fairweather predicts on redfin.com. “But high housing costs will remain a problem for young families, which will increase demand for large rentals and force President Biden to make affordability a cornerstone of his reelection bid. We’re starting to see signs of a shift toward a buyer’s market as pandemic-driven inflation takes its last gasps, mortgage rates come down, and more people list their homes for sale. We expect these trends to continue in the new year, ushering in a season of hope for aspiring homebuyers.”

What is the UC’s housing market looking like in 2024?

“2024 is going to be a better year to buy or sell,” said Brady. “Interest rates are more affordable than the last couple of years. We will see an influx of listings come out which will give buyer’s more options to choose from when trying to find their perfect home.”

This is the first in a continuing series. Check back to part two.

Image by Freepik.

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