Interest rates are climbing, hovering close to 5% recently. Wow! Historically speaking, interest rates are still attractive, but given that we’ve seen rates as low as 2.65% in recent history, 5% is a bit hard to swallow. Higher rates mean you will have less purchasing power if you are a buyer. And, if you are a Seller, it may mean less competition for your home. Or, will it?
Will bidding wars continue?
Last year we witnessed one of the hottest and most competitive housing markets in history. A market that was largely driven by record-setting low mortgage rates and one where most buyers found themselves competing for properties. So, will bidding wars continue now that interest rates are increasing? Maybe. It’s certainly normal to see Buyers pull back when higher rates make buying a home less affordable. It’s reasonable to expect that some of the competition will wane. But, here’s the thing. We have a shortage of available housing in Hawaii and demand for a home in one of the most beautiful places on the planet hasn’t seemed to wane. At least not yet.
All real estate is local.
So, whether you are a Buyer or Seller or just someone who likes to follow the real estate market, it’s important to look at your own market dynamics. On Oahu, we are still experiencing multiple offer situations in most neighborhoods. It’s still not unusual to hear stories of desperate Buyers aggressively competing for property. Purchase contracts still contain very attractive terms for Sellers and many are often over the asking price. Well.Over.Asking.
It’s logical to expect that as the Fed raises interest rates in an effort to curb inflation, demand for real estate will decline, thus putting downward pressure on prices. But, only time will truly tell us how higher rates will impact our market. “Time” is the operative word. For now, we are seeing fewer transactions, but not softer prices, at least not in most neighborhoods.
So, will prices continue to rise in spite of higher interest rates?
In the short run, we think it’s likely. Strong demand and limited supply will continue to buoy prices and those with the ability to buy in spite of higher rates will fuel our market and spur prices upward.
Stay tuned and continue to watch the market response to higher interest rates, but remember, watch your market because it’s your market that matters most.