Will Columbia’s hot housing market be curbed by the federal interest rate hike? What to know
The hot Columbia housing market that has seen rising prices and demand for months could soon be cooled by a recent sizable increase in the interest rate, some economic experts say.
And that’s kind of the point.
The Federal Reserve on Wednesday said it would increase its benchmark short-term interest rate by 0.5% — the largest jump since 2000. The goal is to reduce consumer demand by making it more expensive to buy a home, car or other items. The hope is that a drop in demand will help curb inflation, which hit 8.5% in March.
“It’s a double-edged sword … raising interest rates does impact housing affordability and pulls back demand,” said Joey Von Nessen, research economist at the Darla Moore School of Business at the University of South Carolina.
Von Nessen said the area had already seen the impact of rising interest rates on home mortgages. The Fed raised the interest rate for the first time since 2018 in March.
“We’ve seen hikes in mortgage rates already … several hundred dollars for homebuyers, which is significant,” Von Nessen said.
The idea is that if fewer people buy homes because of higher mortgages, that will lower demand and rein in the runaway housing prices, Von Nessen said.
However, for Jill Moylan, CEO and broker for Home Advantage Realty in Columbia, the interest rate hike in March hasn’t tapered housing demand in the area. Moylan said it appears buyers didn’t want to wait for interest rates to get any higher.
“If anything, the last rate actually increased buyer intensity and I did not see any slow down,” Moylan said. “We are in a strange new world and old expectations are out the window.”
Moylan said that based on buyer reactions across the board, including investors, she expected a similar outcome from the latest rate increase. The Fed has already said it anticipates multiple rate hikes throughout 2022.
According to statistics from South Carolina Realtors, the greater Columbia area did see a small 3.9% drop in home sales during the first quarter of the year compared to the same period last year. However, the Columbia area also saw a large 17.9% jump in the median sales price for homes while also a 24.3% drop in average days houses were on the market during the first quarter — indicators of high demand. Meanwhile, housing supply is low, which could also account for some of the drop in sales.
“There’s no leveling I’ve seen as closed sales from the past six months are higher than those over the past 12 months and will likely continue to move the market for the foreseeable future,” Moylan said of the housing market.
Still, the interest rate hikes are expected to impact housing and inflation slowly, Von Nessen said.
“We’re talking about weeks and months,” he said. “We do anticipate inflation to begin to recede later this year.”
This story was originally published May 6, 2022 at 11:57 AM.
