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%
“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.” 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 six 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 eect 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
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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. “We’re seeing a lot of young profes- sionals stick around [Bellaire, Meyer- land, and West University] because of the [Texas Medical] Center,” said Tim- othy Shanahan, a Realtor in the Meyer- land area. 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. In the Brays Oaks area, the median home sale price rose from the $150,000-$200,000 range in 2018 to the $200,000-$250,000 range in 2021, according to data from the Texas Real Estate Center at Texas A&M, peaking at $280,000 in December. In smaller, more a uent cities, such as Bellaire and West University Place, the month-to-month trend is more volatile. However, the median price of homes sold in ve ZIP codes in the Bel- laire-Meyerland-West University area rose between 2019 and 2021, accord- ing to neighborhood data provided by Kirsten Abney with Better Homes and Gardens Real Estate Gary Greene. Homes in the 77096 ZIP code saw a 20.1% increase, from $330,478 in 2019 to $397,000 in 2021.
Cameron Ansari—a Realtor with Greenwood Properties who tracks trends in River Oaks, Montrose and West University Place—said the lack of housing inventory is the primary driver of market trends right now, forc- ing 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 to drive down rates and facilitate 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, a Meyerland resident and senior vice president of advisory at Zonda, a company that specializes in housingmarket research and analytics.
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2020, according to the Houston Associ- ation 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, accord- ing to the HAR, up from96,271 in 2020. The costs of land, materials and con- struction labor have also increased, making it di cult to build a home for under $250,000, Jankowski 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, which has an o ce in Bellaire. About 31% of Houston-area homes sold in 2021 were at or below the $250,000 price range, Jankowski said.
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