The housing market has a lot of parts to it, and today’s market can even be more confusing with today’s economy. Home prices are affected by several factors which include local, regional, national and global. Not only does supply and demand affect the market, but things like mortgage rates, inflation, and other countries’ economic conditions play into the big picture.
Two big factors that play a part in the housing market are federal funds and 10-year bond rates. The US Federal Reserve puts out a benchmark interest rate that is referred to as the federal funds rate. This is the rate that the banks and lenders will charge other lending companies, the benchmark rate. The benchmark rate is the rate that all other interest rates are based on (everything from saving accounts to credit cards). 
The US government’s 10-year bond also has interest rates that are affected by the federal funds rate. The interest rate for a 30-year mortgage will usually reflect the change in the 10-year Treasury bond rate. So when the 10-year bond rate goes up, so does the mortgage rate and vice versa, when the 10-year bond rate goes down the interest rate will decrease.
Another factor is inflation which is the process through which money loses purchasing power. An example would be if you have inflation at 7.1% that means what would have cost $100 in the past will now cost $107.10. So when the price of consumer goods increases, so do the prices of homes. In order to keep the inflation down, the Fed will make adjustments. If inflation is going up, then the Fed will increase the federal funds rate to bring the inflation rate down by reducing the money supply. The downside to this is that it will also increase the mortgage rates which will make home prices fall due to less buyer demand.
Mortgage rates have a major influence on home prices. When the mortgage rates rise, the monthly payments on a home rise with it. So if you have a 4% interest rate, a $250,000 mortgage rate will cost $1,194 a month. The same mortgage would cost $1,439 on a 6% mortgage rate. “With mortgage interest rates around 6%, American homebuyers have 24 percent less spending power than they did a year ago,” says Allyson Waddell, an agent success manager at RealtyHop.
Again going back to supply and demand, if there is a huge buyers’ demand in the market with little inventory, the home prices will rise. The housing inventory can be impacted by several factors but the major one is new construction. New construction can be slowed down by rising labor and material costs, rising interest rates and falling home prices. If new construction is down, then the housing inventory will be also.
“Housing construction is not increasing at the level needed to combat the shortage. Interest rates could remain at this level for a while, and a buyer will not see a benefit to waiting to purchase property solely to wait for a decreased rate,” explains Waddell.
“Higher rates do put a strain on lower-middle class borrowers because of higher payments. But the slowdown has also made it possible, in some cases, for those same buyers to get closing costs covered and get offers accepted with the contingency of selling their current home. We have also seen an uptick in VA and FHA offers being accepted, whereas in the more competitive environment, these offers were snubbed by sellers,” says Seth Bellas, producing branch manager at Churchill Mortgage.
So basically no matter if the housing market is in your favor or not, and you want to purchase or sell a home, you need to choose a local real estate agent. Working with a knowledgeable real estate agent will allow you to get the best deal in your area.
