High home prices could drop in November as mortgage rates increase, economist says

An economist at Realtor.com forecasts that home price growth will slow in the final months of 2021, but that interest rates will continue to rise. Here's what that means for homeowners and homebuyers. (iStock)

Home prices are rising, though not at the same record pace as earlier this year. As a result, economists say both homebuyers and homeowners should expect substantial home value increases annually, but decreases month-over-month toward the end of 2021.

"The typical home listing price growth has slowed from its earlier year double-digit pace, but over the last month or so home prices have shown remarkable sticking power, settling in a pattern of high single-digit growth," Realtor.com Chief Economist Danielle Hale said. "This is likely to continue through the end of 2021 as plenty of buyers are bumping up against relatively few homes for sale. 

"What this means specifically is that month-to-month we're likely to see some declines in the median listing price as we typically do toward the end of the year, but this year's prices are likely to remain 7% to 9% higher than prices one year ago," she said. 

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Mortgage rates to continue moving higher

Mortgage rates have risen over the past few weeks, reaching 3.14% for the average 30-year fixed-rate mortgage, according to the latest data from Freddie Mac. And Hale forecasts this trend is likely to continue as the Federal Reserve discusses tapering its economic stimulus.

"I expect we'll continue to see mortgage interest rates move higher, as the Fed as indicated that they are likely to begin tapering of asset purchases before the end of the year," Hale said. "The combination of improving economic conditions and Fed tapering will be a one-two combo that nudges mortgage rates higher."

As the Central Bank begins to taper its stimulus, it will push all interest rates – including mortgage rates – higher. 

"The Fed's actions don't directly impact the housing market, but they do impact broad financial conditions," Hale said. "The Fed is expected to taper before the end of the year. This means they'll purchase fewer mortgage-backed securities, and that means that other investors will have to step in. It's likely that other investors will step in, but we may see the prices fall in order to attract them to purchase these securities, and that could lead to higher mortgage rates."

If you are looking to utilize low interest rates before they begin increasing, consider refinancing your mortgage to potentially save hundreds of dollars on your monthly payment. Visit Credible to compare multiple lenders at once and choose the one with the best interest rate for you.


Economist advises homeowners to act soon

As mortgage rates rise, Hale said homeowners should act soon since interest rates remain at historic lows. For many, she added, this could still benefit them and lower their monthly payments.

"The best advice for homeowners is to act soon if they've pondered but put off a refinance," she said. "Rates are still near historic lows, but they are rising so the window of opportunity for many is closing. For homeowners thinking they'd like to move, selling is still a good option in a market where homes for sale are scarce, but since this is the time of year when we typically see fewer buyers, sellers will want to make sure they price in accordance with current market conditions, not peak summer prices if they want to sell before the end of the year."

Hale said this could also be a good time for homebuyers since the competition will not be as fierce as high demand slides and bidding wars diminish in November and December. 

"For potential homebuyers looking to buy now, you may have some bargaining power in this market, but you are also not likely to see many options," Hale said. "Homes are sitting on the market longer than they did this summer, but they're still selling faster than they have in any previous year, so be prepared to act quickly when you find a home that's a good fit. This means settling on a budget and getting pre-approved for a mortgage."

If you are interested in refinancing your current home or buying a new one, contact Credible to speak to a home loan expert and get all of your questions answered.

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