The sudden interest in rising interest rates
The worst may be behind us, but the recovery won't be quick
Interest rates in the U.S. raised by 4.25 percent in 2022. This means it costs more to buy a house, a car, or virtually anything else on credit. In a year when the cost of all goods rose by nearly nine percent, many might wonder why the Federal Reserve Board (Fed) pushed rates so hard.
Paul Wyman, a licensed Realtor, broker, and Howard County Commissioner, sat down to answer some questions about the interest rates which have cooled the housing market considerably.
Kokomo Lantern: How long were we in a lower interest rate environment?
Paul Wyman: It has been almost 20 years since we have experienced any kind of significant rising interest rates for a prolonged period of time.
KL: Now that mortgage rates have exceeded seven percent, how did we get here and what does it mean for the housing market?
PW: It is simple. Inflation. When inflation takes off at the rate it has, the Fed has no option but to raise rates and crush asset classes in order to bring inflation back down. Real Estate is an asset class that has seen tremendous appreciation and high, fast-paced sales the last couple years. This is one area the Fed needs to slow things down to meet their inflation objectives. So, with higher rates, fewer people will buy homes, therefore bringing prices down as competition wanes.
KL: How long does this last?
PW: We are starting to see that slow down. How long does it last? Nobody can predict with a certainty, but we do not see this as a blip. It will take some time to unwind the massive inflation and lack of supply for items in the marketplace. The labor conditions, mainly the shortage, will also have to work its way through this period as well. So, in the short term we see more slowdown and more challenges than we do a quick turnaround.
KL: What is the bright side of it all?
PW: The good news is that Kokomo and Howard County consistently rank in the top 25 for most affordable housing in the nation. This is great for us in a rising interest rate environment. Our average home sale price is still way above the lows of the great recession of 2010. The new $2.5 billion Investment in the Star Plus Battery plant will also help provide a slight hedge to some of the economic challenges. And of course, the great quality of life we have in Howard County, low crime, great education, incredible health care, and many amenities such as the Jackrabbits and Kokomo Bobkats. There are so many reasons people want to live in Howard County which will also help get us through these times of rising interest rates.
Paul Wyman is the principal broker of The Wyman Group and a past president of the Indiana Association of Realtors and Howard County Association of Realtors. If you are looking to buy or sell a home, call him at 765-854-1234 or visit www.thewymangroup.com
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