The era of mortgage rates below 3% will end next year as the Federal Reserve tries to fight inflation, making home buying more expensive but only slightly cooling the booming real estate market in Canada. Maine, according to experts.
A confluence of factors will influence home prices and mortgage interest rates over the new year. Interest rate hikes often cause banks to raise mortgage rates when borrowers refinance or start a new mortgage. Rising inflation means higher rates, which could lower home prices. At the same time, prices tend to increase in times of high inflation.
The result of these conflicting trends is that home prices will continue to rise, but not as fast as they have this year, according to economists. Homes will be more affordable for cash buyers, but they will be more expensive for the vast majority of buyers who have to take out more expensive loans.
“We don’t see it as a bubble in the sense that we’re going to have a crash like we did in 2009, just because the circumstances are so different,” said Mike Fratantoni, chief economist of the Mortgage Bankers Association. , during a press conference. recent Bangor Daily News webinar on real estate.
Price relief will take at least a few years. Home prices are up 18% nationwide at a time when headline inflation is up 6% and wages are up 4%, he said, so house prices are rising. far ahead of all other sectors of the economy. Some wait for the market to come down before buying, but that won’t happen anytime soon.
“This is unfortunately our new standard,” said Kortnie Mullins, vice president of the Bangor Region Realtors Association.
The imbalance between high demand and limited supply of housing existed before the pandemic, Fratantoni said, but it was amplified by a wave of millennials looking for housing and existing owners wanting bigger homes. These factors also drive up prices.
Maine also has a supply problem with about 25,000 housing units less than it needs, said Aaron Bolster, president of the Maine Association of Realtors.
“That’s a lot in a place of 1.3 million people,” he said.
New construction slowed during the Great Recession, and Maine and other states have not continued construction to meet housing demand since then, said Tim Wells, director of the Greater Portland Community Land Trust.
It could take two to three years for housing production to increase. Outdated municipal zoning regulations have made construction difficult and expensive, he said. The state is trying to make it easier to build more homes, including with a new law this year that could boost the construction of smaller homes.
Labor shortages and high prices for building materials are also holding back new construction. Supply chain constraints also extend a typical six-month construction loan for a new home to 24 months, Fratantoni said.
At the same time, less and less housing is put on the market. Prices for single-family homes in Maine rose more than 15% to a median selling price of $ 270,000 last December from December 2019, according to the Maine Association of Realtors. Last November, the median selling price rose 11% to $ 300,000 from November 2020. But the number of homes sold was down 8%, the fifth consecutive monthly decline. That’s because the inventory of homes for sale was less than half of what it was before the pandemic.
Rising rates could trigger a series of refinances before the Federal Reserve hikes rates up to three times in 2022. The rate on a 30-year fixed mortgage is expected to drop from its all-time low of 2.65% in December 2020 to 4% by the end of 2022, said Fratantoni. That would bring it back to the pre-pandemic rate. The current average rate is 3.1%.
For someone who wants to take out a 30-year fixed mortgage for $ 300,000, the 3.1% interest rate would mean paying $ 1,281 per month. With a rate of 4% at the end of next year, that monthly payment would be $ 1,432.
“A 4% mortgage rate is historically very, very attractive, but this increase should be enough to dampen it a bit,” said Fratantoni.
The confluence of factors that created the current housing market situation makes it difficult to resolve. Increasing the production of housing of all types in the state could help, said Jeff Levine, director of the Maine Affordable Housing Coalition.
“It won’t happen overnight, but it’s definitely something that could make it easier to buy your dream home,” he said.