Will Higher Mortgage Interest Rates Affect The St. Louis Market?

Mortgage interest rates have climbed up as much as 1% in the last ten days thanks to a stronger than expected jobs report last Friday and soaring inflation. Will higher mortgage interest rates affect the St. Louis market? Possibly. It’s tough to say in the short term, but here’s what we’ve seen historically.

Fewer Buyers Will Be Able to Qualify

There is always a segment of buyers in every market who are “on the bubble” of affordability. If interest rates go up just a little, they will not qualify for a mortgage.

While this is a small segment of the potential buyers out there, it still reduces the number of buyers in the market to buy a home.

The problem is that the mortgage interest rates have not gone up “just a little.” 

Over the last week, interest rates have moved up significantly, and every day is a new high for the year. On November 29th, the average 30-year fixed-rate mortgage was at an average execution of 3.19%. As of this writing, we’re at 4.05% and still climbing. I’ve seen quotes in the 4.20 range depending on the credit score. 4.05% is the highest level since May of 2019.

The higher mortgage interest rates get, the more some buyers cannot afford a mortgage.

What Effect Will Fewer Buyers Do To The Inventory of Homes for Sale?

Historically, a 4% mortgage is a fantastic rate even though it’s gone up over 1% in just a short time. That said, it can affect the number of homes for sale.

The inventory of homes for sale has been at all-time lows for several years. There are not enough homes available nationwide for the current demand for housing. 

Fewer Buyers = Waning Demand

When the number of buyers available decreases, it takes longer to sell a home. The longer it takes to sell a home, the more time other homes have to start building up the inventory of homes for sale.

When the market gets to a certain point, usually marked by 3 to 4 months of inventory available for buyers to absorb, the prices of homes will start to decrease due to lack of demand. It’s officially a buyers ‘ market at six months of inventory on the market for sale.

While this might seem like a doom and gloom scenario, this will take a long time to play out, and is dependent on other factors. The direction of the economy plays a massive role in this equation. While the economy is bustling right now, that could change quickly.

Inflation is also a factor right now, but that can’t last forever. It’s a shame to have a good economy and astronomical inflation at the same time.

Mortgage interest rates in the St. Louis real estate market spiking to 6% by the end of the year could add to the confusion, but we’ll see how that goes.

If you’re looking for a premium, luxury downtown St. Louis loft or condo, please don’t hesitate to contact us. Moving now before rates go even higher will save you a lot of money. Click here for my contact page; I’d love to help you find what you’d love.

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