News of the Federal Reserve’s recent interest rates hike didn’t come as much of a surprise for real estate agents closely watching the market.
INDIANAPOLIS — News of the Federal Reserve’s hike to interest rates by three-quarters of a percent didn’t come as much of a surprise for real estate agents closely watching the market.
“It’s definitely having an impact on people’s pocket books,” said Lynn Wheeler, president-elect of the Indiana Association of Realtors and senior VP at President Berkshire Hathaway Home Services Indiana Realty.
Wheeler said interest rates have been unusually low for a long time, and this will set them back at a more normal level.
“The big problem that it puts on people – or the big strain – is affordability,” Wheeler said. “So the average home in central Indiana is about $260,000, and this raise added about $400 a month to the monthly payment for the average individual putting 20 percent down, just by taking the rates from low three percent to near six percent where they’ve traveled this year.”
Kyle Anderson, an economist with IU Kelley School of Business, said the Fed’s rate hike will have many families feeling the squeeze, but added it’s a necessary pain after the economy bounced back quickly from COVID-19 lockdowns.
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“So what happened was demand rebounded very much. People were ready to get out and spend and buy things and jobs were plentiful, but the supply chain disruptions meant we couldn’t bounce back on the supply side, so prices had nowhere to go but up,” Anderson said.
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So how will the rate hikes help?
Take the housing market.
With interest rates now higher, Anderson said fewer people will be interested in buying homes, and that will mean fewer homes being built over the next few years. In turn, Anderson said, that will cool the housing market and allow the supply chain to catch up to demand, allowing prices to stabilize and inflation to slow.
“It’s certainly going to slow down the economy. And we’ve had a nicely-growing economy. We’ve got low unemployment. So we’re running a risk that some of those things are going to turn around, and maybe we’ll head into a recession. That’s not a good thing, but it’s probably worth the risk because we need to get this inflation under control,” Anderson said.
Wheeler said until that happens, it’ll be a challenging market for people looking to buy.
“We definitely have a lack of inventory and still high demand, so you’ll still see multiple offers. You’ll still see people rushing to the market, it’s just going to be a little bit more unpredictable than it’s been over the past year or two,” said Wheeler.