A Matter of Interest
By Matthew Roberts, Certified General Real Estate Appraiser
The Fed’s Largest Rate Increase Since 1994
The Federal Reserve raised its benchmark interest rate again this month.
The 0.75 percentage point increase marks the largest single increase by the Fed since 1994 and pushes interest rates to a point not seen since the financial crisis of 2008. The move, an attempt to curb rising inflation, is likely to have a significant impact on all new mortgages. The average interest rate on a 30-year fixed-rate mortgage rose to 5.65% the prior week. After the announcement on Wednesday, June 15 that the Fed was again raising the rate, this figure surged to 6.28%.
June 2022
Biggest Hike Since 1994
The Fed’s move to curb rising inflation, and what happened to mortgage rates.
Federal Reserve benchmark rate increase
0.75 point
The largest single increase by the Fed since 1994
Average 30‑year fixed mortgage rate
Week before the hike
5.65%
After the June 15 announcement
6.28%
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
What Higher Mortgage Rates Mean for Demand
As a result, total mortgage applications have dropped 52.7% from the week prior, according to CNBC.
These increases can raise a monthly mortgage payment by several hundred dollars. All of these factors point to a sharp decline in national demand, as rising rates begin to price many would-be borrowers out of the market.
What Appraisers Are Seeing Locally
As appraisers, one of our primary focuses is always assessing the current state of the real estate market.
We watch constantly for sales prices. We have recently seen properties sell at auction lower than anticipated - or not sell at all - while others still command top dollar. Auctions are difficult avenues to assess, as they are very dependent on the motivations of the present buyers.
In speaking with local real estate agents - another important tool at an appraiser's disposal -- homes have still been selling well recently, and demand locally does not appear to have diminished. Recent sales and listings still seem to point to a strong market. It is yet uncertain what impact the most recent increase will have on local demand. It is a general rule that our more rural markets take longer to adapt than some of the major metropolitan areas.
National vs Local
Two Different Pictures
What appraisers were seeing in June 2022.
Nationally
Demand Falling
- Payments up by several hundred dollars a month
- Rising rates pricing many would‑be borrowers out
- Signs point to a sharp decline in demand
Locally
Still a Strong Market
- Homes still selling well
- Demand doesn’t appear to have diminished
- Rural markets take longer to adapt
- Auctions mixed: some sell low, others top dollar
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
Why Appraisals Matter in Uncertain Times
During such uncertain times, real estate appraisals become even more important.
If/when demand declines locally, it is important to be informed on the current state of the market before entering into transactions. With abnormal levels of inflation, it is difficult to say whether prices will continue to increase, stagnate, or even begin to decline.
At Spurgeon Appraisals, we pride ourselves on being the experts capable of giving you an accurate picture of the market, helping you make the best decisions possible. Email us today for an appraisal quote.
