As a homeowner, you may have noticed signs of recent changes in the Massachusetts real estate market. Mortgage rates are at an all-time low and that has impacted home purchase decisions; however, this isn’t the only factor influencing the real estate landscape.
To better understand these current mortgage rate trends and their potential impact on your property investments, it’s important to explore what we know about supply and demand for housing in Massachusetts as well as consumer attitudes towards taking out a loan. In this blog post, we’ll cover how mortgage rates can affect both buyers and sellers when purchasing or selling a home in our great state.
Changes In Mortgage Rates In Massachusetts In Recent Years
As with the rest of the country, Massachusetts mortgage interest rates, and the housing market as a whole, have experienced significant changes over the last 3 years. From pre-pandemic lows to inflation-induced highs, mortgage rates have sent homebuyers on a roller coaster ride.
To gauge just how dramatic the changes have been, the below example highlights the difference in rate, and subsequent mortgage payments, for a $500,000 loan in 2020 vs. 2023.
Mr. and Mrs. Jones purchased a home in East Boston in 2021 for $700,000. They were able to put 20%, or $140,000, down, and mortgage the remaining $560,000. The rate at the time of the purchase was 2.87% for a 30-year fixed, making their monthly mortgage payment $2,322.
Now, let’s pretend that Mr. and Mrs. Jones decided to wait until 2023 before buying a home. Once again, they purchased a property in East Boston for $625,000 and had a downpayment of $125,000 or 20%. They took out a loan for the difference, $500,000, at an interest rate of 6.75% for a 30-year fixed mortgage. Mr. and Mrs. Jones’s monthly payment would be $3,243.
Quick note: Property price idea was taken from Seth William’s East Boston listing. There might be some differences if you compare with other listings.
Despite the price of the home and the amount of the mortgage being considerably lower in 2023, the Jones’ will be spending nearly $1,000 more a month on their mortgage payments.
For direct comparison, if the price of the home ($700,000 with 20% down) was exactly the same in 2023 as it was in 2021, the difference between the mortgage payments would be $3,632, or in other words, $1,310 more per month.
The Effects Of The Rates On The Current Market
The real estate market in Massachusetts has been significantly impacted by the recent rise in interest rates. This increase has resulted in slower rates of home sales, smaller down payments, and higher monthly payments for mortgages. Buyers have had to be increasingly creative in their financing strategies and sellers have had to exercise patience during their negotiations.
To put it in numbers, in January 2021 there were approximately 3,500 single-family homes and 1,400 condominiums sold statewide. Fast forward 2 years (and over a 3% rate hike) and the state only saw the sale of 2,238 single-family homes and 1,056 condominiums. While there are certainly additional factors to take into account, it is expected that a rise in interest rate will correspond with a decline in sales.
The effects of this situation don’t just stop with the buyers and sellers though, as other entities involved with the real estate industry have had to make adjustments as well. Banks are being forced to adjust their loan products, brokers develop new marketing strategies, and contractors search for ways to offer competitive prices without sacrificing quality in order to stay competitive. It’s clear that these upswings in interest rates can be a challenge but it’s possible that they may also lead to innovation from all parties involved.
What About The Rest Of 2023?
At the moment, it is difficult to predict how the next 8 months will play out across Massachusetts. If inflation and consumer sentiment continue to rise, mortgage interest rates may remain high for some time as lenders try to mitigate their risks of defaulting on loans.
On the other hand, if consumer confidence drops or economic initiatives are put in place to stimulate the housing market, we may see mortgage rates start to level out. In either case, it is important for homebuyers and sellers alike to stay informed on current trends in order to make well-informed decisions regarding their real estate investments.
By keeping an eye on both the national and local economy, Massachusetts homeowners and buyers can be best prepared to navigate the ever-changing landscape of mortgage rates and housing prices. Having an understanding of how the market has shifted in recent years will also help homebuyers and sellers in Massachusetts make well-informed decisions when purchasing or selling a home.
No matter what happens, it is important to remember that knowledge is power. Keeping abreast of how mortgage interest rates are impacting the Massachusetts real estate market will give both buyers and sellers the ability to make sound financial decisions in a shifting landscape.