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Inflation and the Real Estate Market

May 3, 2022

There are obvious significant changes in the economy over the last several months. Inflation is a serious threat that has resulted in the Federal Reserve raising rates. The stock market has suffered accordingly.

The question becomes how will this affect the real estate market. As a real estate attorney, I am still very busy and the volumes of transactions are still high. However, national statistics show that mortgage demand is reduced as interest rates rise. The total mortgage application volume fell 5% last week compared to the previous week and was nearly half of what it was one year ago according to the Mortgage Bankers Associations Seasonal Adjusted Index. The average contract interest rate for 30 year fixed rate mortgages with conforming loan balances ( $ 647,200.00 pr ;ess) increased to 5.20% last week from 5.13% with points rising to 0.66 from 0.63 ( including origination fee) for loans with a 20% down payment. One year ago, the rate was exactly 200 basis points lower at 3.20%

The refinancing market also has diminished significantly ( 68% lower than one year ago.) The activity in adjustable rate mortgages has increased significantly as well. A report on Tuesday from the U.S. Census showed a drop in building permits for single-family homes.

All of the above factors point to a slow down in the real estate market. Additionally, the above factors do not even address the very high price valuations that are now commonplace. Real Estate is here to stay ( they do not make any more of it) , but all markets have ebbs and flows. The last very significant downturn occurred with the crash of 2008 . Prior to that, the market was frothy , as it had been recently . The pandemic brought about a glut of activity. It seemed that everyone wanted to move, buy, sell, etc. We will now see whether m=negative changes in the overall economy as discussed above will put a damper on the volume of activity.