Creeping Interest Rates Cause For Reassessing Home Buying Expectations

And then there are other factors from affordability to soaring prices in rentals.

The latest addition to the list: creeping interest rates that are impacting mortgages.

There was hope of relief in 2022 for prospective homebuyers. But a survey forecasting the outlook for homeowners in 2022 reveals 26% of people would be less likely to buy a home this year because of rising interest rates. The average interest rate jumped by more than half a percentage point since March 10, per Freddie Mac's weekly Primary Mortgage Market Survey. And the average rose above 4% on March 17 for the first time since 2019.

The result, according to local and national realtors: People with a strong motivation to move (relocating, schools, growing or shrinking family, change in marital status) will do so regardless of interest rates, but some buyers are moving faster to buy having learned how quickly rates can increase.

Others are pausing on buying or reconfiguring their expectations on their home search and what they can realistically afford. Some are opting to stay put if the move is more a want and less of a need.

"We have increased the conversations around interest rates, but there's still such a shortage of inventory and demand is still so high that it seems to be conversation No. 3, 4 or 5," said Lauren Walz, the Western Springs and La Grange realtor for the Dawn McKenna Group. "There have been more adjustments to budgets and expectations because of the interest rate hikes than actual changes in the housing market. A little bit of a hike has created some conversation, but if you look over the past 20 to 30 years, they're still historically low."

"Interest rates in the early '80s were upward of 18% and people still moved," Amy Kite, broker and owner of the Kite real estate team, said. "Five percent isn't really high, but the reality is the interest rates have been so low people now think 5% is high."

Kite saidthe increase in interest rates since December means buyers aren't able to spend as much on a new home. For example, buyers who were qualified to purchase a home for $600,000 in December are now qualified to purchase in the $450,000 range.

According to data from the Chicago Association of Realtors (CAR), rising interest rates aren't making a significant impact as far as market slowdowns - buyer demand still remains high. The median sales price for homes in Chicagoland from March 2012 to March 2022 has gone from $151,680 to $310,000; and from $295,000 to $310,000 from March 2021 to March 2022. And that's in light of a marked reduction in inventory - a 29% reduction of all Chicago homes for sale from last year until now and 27.4% fewer single family homes for sale from March 2021 to 2022.

"Prices of course are moving up because of the supply and demand element," said CAR President Antje Gehrken. "Buyer demand remains high, and with a little bit of perseverance and a great realtor and some good strategy, buyers are still able to get into a home."

Makeda Smith, real estate broker at Smith & Partners Realty Group Inc. in Plainfield, helps real estate agents maneuver the existing housing market. She said the agents she's spoken with across the country are saying that they have multiple buyers preapproved for a home, but the agents are having a hard time finding them a home.

"The average price right now in and around Chicago is $309,000 and last year it was $290K - that property was more affordable last year than it is this year, unless they have some type of increase in their income," Smith said. "With the interest rate coupled in there, they may not be able to afford it this year."

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