Mortgage rates are rising, so what does that mean for Lexington? We asked an economist
Interest rates for America’s most popular type of home loan are closing in at 7%, according to finance giant Freddie Mac, meaning 30-year, fixed-rate mortgages are more than twice as expensive than they were a year ago.
With typical mortgage rates at their highest rates since the middle of the Great Recession, does it still make sense to be in the market for a home? According to some financial experts, maybe.
Even though mortgage rates are higher than they’ve been in recent years, the rates are still among average levels over the last 30 years, according to CNBC. Not to mention for those currently in the market for a home, less competition could give homebuyers more room to elbow their way in, translating to lower sales prices, according to Realtor.com.
“These higher interest rates are basically likely to slow down the demand for housing,” University of Kentucky economist Dr. Mike Clark told the Herald-Leader in an interview.
Lexington is still a tight market that favors sellers, Clark noted, but homes are staying on the market longer, with the median days on market for August rising to 42 days, Realtor.com data show.
Clark compared the decline in demand likely to result from higher loan rates to what Lexington’s housing market experienced during the Great Recession more than a decade ago. Housing demand stagnated at the time, but never really dried up.
All of this can be traced back to recent actions taken by the Federal Reserve aimed at correcting soaring inflation, Clark noted.
“They’ve been aggressively increasing the interest rates,” Clark said, adding the results are mixed across sectors of the economy. “We are seeing some signals in certain markets, like the housing market. Retail trade hasn’t really fallen back much.”
So is the Fed doing too much too fast? Are its aggressive interest rate hikes likely to lead us into a recession next year?
Clark refrained from making any hard-and-fast predictions, but a rising chorus of economists are saying a global recession is likely to occur in 2023.
Do you have a question about housing Kentucky for our service journalism team? We’d like to hear from you. Fill out our Know Your Kentucky form or email ask@herald-leader.com.