Interest
What does itmean?
The Federal Reserve plans to raise interest rates multiple times in 2022 to try to mitigate in ation. Rates uctuate between a quarter of a percentage point range.
rate rise
Changes to the federal interest rate have direct consequences on other costs that trickle down to the general public. Mortgage payments: Adjustable rate mortgages are likely to adjust alongside the federal interest rate. Credit card: The annual percentage rate is likely to adjust alongside the federal interest rate. Savings accounts: Banks could increase the rate at which interest accrues on savings accounts. Student/car loans: The exact interest rates consumers will be o ered will not be a ected, but the cost for banks to lend to each other will be. As a result, these rates may rise.
SOURCE: U.S. FEDERAL RESERVE COMMUNITY IMPACT NEWSPAPER
2.5%
Projected: Five more increases could take place in 2022.
An economic slowdown results in a rate drop.
2%
1.5%
Interest rates are increased as the U.S. economy trends upward.
Interests rates are reduced to near 0 during the COVID-19 pandemic.
1%
Rise in interest In April 2020, the Federal Reserve lowered interest rates to nearly zero to stimulate the economy as the corona- virus pandemic forced the closure of thousands of businesses nationwide, Jarvis said. The Houston-area real estate mar- ket stayed strong throughout the pan- demic despite supply chain issues, which allowed companies to raise prices on consumers, Jankowski said. The move to raise interest rates this year, potentially to 1.5% by December, is intended to reduce demand, he said. “You raise interest rates to make things more expensive to purchase,” Jankowski said. On March 16, the Federal Reserve raised interest rates for the rst time since December 2018. The change was a quarter of a per- centage point higher from nearly 0% to 0.25% with up to ve more similar increases planned throughout 2022. An increase in the federal interest rate trickles down to a number of areas, including higher mortgage payments, credit card payments and interest rates on savings accounts. The e ect on mortgage payments, in particular, comes with other concerns, Dean said. “We are in an environment where moving up to a 4%-4.5% typical mort- gage interest rate can actually begin to pose some problems and slow down demand for both new and resale homes,” Dean said. In Harris County, the median monthly mortgage payment is more than $1,100, according to the Federal Reserve Bank of Atlanta. Because mortgages are taken out when home- owners cannot a ord to buy a home outright, an increase in the mortgage
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Widespread demand A new generation of homebuyers has been entering the market as many second-time homebuyers have begun looking for new homes, Jarvis said. This rise in home sales is not exclu- sive to any single part of Houston, data shows. The city’s suburbs and urban areas are both highly active. Monthly data from the Texas Real Estate Center at Texas A&M University shows the median price of homes sold in the Greater Heights in 2019 rarely topped $500,000. Throughout 2021, the median price was over $500,000 in every month except February. At the ZIP code level, the month-to- month trends are more volatile. How- ever, the median price of homes sold in four of ve ZIP codes in the Heights, River Oaks and Montrose area rose between 2019 and 2021, according to neighborhood data provided by Kirsten Abney with Better Homes and Gardens Real Estate Gary Greene. The median price rose by more than 10% in the 77008, 77019 and 77098 ZIP codes over that time. The 77006 ZIP code, which covers parts of Midtown, saw a drop in median price over that time of roughly 13%. Cameron Ansari—a Realtor with Greenwood Properties who tracks trends in River Oaks and Montrose— said the lack of housing inventory is
the primary driver of market trends right now, forcing people to ght over the few houses available. “There are all these buyers at every new listing’s open house,” he said. “You can see them standing in the front yards with their Realtors. It’s like a spectator sport.” The low supply cannot be tied to low construction, Jarvis said. In 2019, 34,000 new homes were built in the Houston area, a gure that rose to 39,000 in 2020 and 43,000 in 2021. However, the demand still outpaced the supply, Jarvis said. “The story is the same all over Texas and all over the country,” he said. “We built all we could.” Over the course of the pandemic, the Federal Reserve began buying upmort- gages, a move some experts said was meant to drive down rates and facili- tate rapid growth in the market. “We are going to go into a period where, kind of by design, demand [for] both new and resale will begin to decline as interest rates increase,” said Lawrence Dean, senior vice president of advisory at Zonda, a company that specializes in housing market research and analytics. “But because we’ve not been able to satisfy demand for so long, we got this sort of built-in wiggle room before demand could potentially decrease to when it’s below supply.”
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according to the Houston Associa- tion of Realtors. The median price hit $328,000 in February of this year, up from $245,000 two years ago. Market experts said the rise in home prices can be partially tied to economic in ation, which has impacted nearly every market in the U.S. However, in ation alone does not answer why prices have hit all-time highs, said Pat- rick Jankowski, senior vice president at the Greater Houston Partnership, an economic development organization in the Greater Houston area. “The demand has gotten so strong, it’s driven up prices,” Jankowski said. In 2021, 106,229 single-family homes were sold in the Houston area, according to the HAR, up from 96,271 in 2020. The costs of land, materi- als and construction labor have also increased, making it di cult to build a home for under $250,000, Jankow- ski said. “The prices and the in ation, the disruption in the supply chain and the lack of materials, the lack of the labor, … that is the most troublesome thing,” said David Jarvis, senior vice president at John Burns Real Estate Consulting. About 31% of Houston-area homes sold in 2021 were at or below the $250,000 price range, Jankowski said.
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