The current higher interest rate environment in the United States is having an impact on the housing market. Due to the Federal Reserve’s monetary policy changes implemented in March 2022 to curb inflation, interest rates have increased, which has led to higher mortgage rates and monthly payments for home buyers. As a result, home prices have slightly declined from their peak in mid-2022, and the market for real estate investment trusts has also been impacted.
Prior to the pandemic, the housing market was supported by a supply-demand imbalance and low-interest rates on home mortgages, which resulted in higher home prices. However, the onset of the Fed’s new monetary policy in early 2022 led to an increase in interest rates and a subsequent slowdown in the housing market.
Despite the decline in home values, it is not expected to be a major setback, as homeowners still have significant equity due to the appreciation in home values that occurred up until mid-2022. Additionally, a limited inventory of homes on the market may not result in a significant deterioration in home values, as some existing homeowners may be reluctant to sell their current house, buy a different property, and borrow at today’s higher mortgage rates.
Higher borrowing costs also affect builders’ ability to finance the development of new homes, which could limit the supply of new construction. Existing home sales experienced a brief resurgence in February 2023 but dropped again in March, reflecting a long-term slump in activity.
Overall, the housing market is facing challenges due to the current higher interest rate environment, but the impact is expected to be modest and may not result in a significant deterioration in home values.