Rising Mortgage Rates are Sabotaging Home Buyers

Mortgage Interest Rates are once again on the rise, recently surpassing the highest rates since 2009, right after the sharp decline during the 2008 housing crisis. Due to how much a small change in these percentages can affect the purchasing power of the buyer, home buyers today are struggling to find options that suit their needs within their price range. For example, for someone taking out a $200,000 30-year fixed loan, they would pay $955/month at 4% interest and $1074/month at $5 interest. Recent data shows that today’s home buyers are spending hundreds of dollars per month more than they would’ve on the same house at the beginning of this year. Such a drastic change over a short period of time can significantly affect the quality of life of the buyer. Simultaneously, home prices have also been on the rise, yet at a less accelerated rate. The combination of these factors is worrisome to all parties involved in real estate. A terrifying effect of this conundrum is that both buyers and renters are experiencing bidding wars for their desired properties at unprecedented levels. It used to be more common that a buyer could negotiate with the seller to purchase the sellers’ home at a cheaper price for a plethora of reasons. Now, this leverage seems to be fading. As buyers/renters are rushing to secure their mortgages/leases due to the substantially rising prices, they are bidding each other out. It is an oxymoron in a sense, bargaining to pay more than the listed rent to avoid paying much more than the listed rent in the future. This outrageous demand for housing is creating a shortage, there simply isn’t enough housing for “normal people''. While the average home buyer is being deterred or disrupted in their purchasing process due to insufficient housing and the rising mortgage rates, the uber-rich are buying houses at an unprecedented rate. These changing economic conditions are far less impactful on the purchasing power of a rich buyer, as they are more likely to be able to avoid interest all together by paying in cash. All of these conditions are widespread, yet they apply heavily to Philadelphia. In fact, Philadelphia being known as a relatively cheaper city to live in than many of its East Coast neighbors is one reason why the effects are being amplified. People want to live in the City of Brotherly Love! Overall, this is a good thing for the city, yet it is happening at a time where the real estate market is in a less stable market than pre-pandemic, and there simply isn’t enough housing to meet this demand without unintended consequences such as bidding wars and greater increases in home prices.

Photo: Axios