Higher interest rates slowing housing market

By Mike Sunnucks | Rose Law Group Reporter

Higher interest rates are slowing down the Phoenix market and the Federal Reserve’s 0.75-point rate hike announced Wednesday is poised to make rising mortgage costs even higher.

Steven Hensley, senior advisory manager for real estate research firm, said the previous two rate hikes by the Fed of 0.50 and 0.25 points are already slowing down home sales.

“It’s definitely having an impact on demand,” Hensley said.

The cost of mortgages in metro Phoenix is also going up and will move higher after Fed Chairman Jerome Powell announced a 0.75-point rate hike on June 15.

The rate hikes aim at the highest inflation since 1981 and record high gasoline prices of $5 or more over much of the country.

Mortgage rates were in the 7% range Thursday after the latest rate hike.

They had moved into the 6% range before Powell’s announcement, which tied high prices to workers’ wage gains.

Hensley said in metro Phoenix the average mortgage payment has gone from $1,475 per month with a 3% rate to $2,236 a month with a 6% rate.

That translates into a $761 monthly increase — a 52% jump.

“That’s a pretty significant jump,” Hensley said.

Higher interest rates are hitting entry level and first-time buyers in Phoenix market which has posted strong price gains throughout the pandemic. The pipeline of buyers is decreasing and builders are seeing fewer prospects in sales offices and on once more crowded waiting lists.

“We are seeing a noticeable slowdown in demand,” Hensley said.

Some sales contracts are being canceled and higher mortgage rates and qualification bars are pricing out some buyers.

Those impact entry level, farther out suburban markets such as Buckeye and Pinal County.

Lower demand is already increasing constrained inventories of homes for sale in markets such as Phoenix.

“We have pretty much doubled the amount of inventory on the market today that we had in January,” Hensley said.

He said the changed landscape comes as builders are developing new lots to keep up with previously high demand levels.

There are currently approximately 480 active subdivisions in metro Phoenix (down 15% from a year ago), according to Zonda.

Hensley said that construction level could increase to 500 subdivisions regionally.

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