Will mortgage rates be the key factor to a price drop in the housing market?

Real Estate Broker/Owner with Condoideas Realty Group

Real Estate has been on a hectic ride for the past 2 years. The one factor putting the whole industry at test this year will be the hike in mortgage rates.  To make it simple, let me give you an example: if a borrower took out a loan last year for $400,000 at 3.11%, the monthly amount for a 30-year loan would be $1,710. However, with mortgage rates at 4.67%, the amount reaches $2,067. This is a huge difference.


In the current market situation in the U.S, one of the major obstacles isn’t mortgage eligibility, but home prices! The lack of inventory across the country made it really hard for prospective buyers to find the perfect property. Often, for the past 2 years, the budget allocated to the purchase wasn’t large enough due to the inflation in Real Estate (+19.2% between January 2021 and January 2022). Therefore, buyers have to take on bigger loans or reduce their choosing criteria for the home they’re after.


For the market to lose some steam, it would need hundreds of units coming out of the ground within a year, which remains unattainable. The inventory is still extremely low, especially in Florida, where the covid renters/buyers are still in full force. For example in Brickell or in Miami Beach, some buildings have no units for sale in the entire building.  Therefore the way to see the deceleration of this hot market could only come from a hike in the mortgage rate. In fact, higher mortgage rates are a key factor in seeing the real estate industry get back to reasonable levels. Industry professionals are saying home prices will rise just 5% in the next 12 months.


This year, we know that over 65% of the regional markets in the U.S are overvalued. At some point, the income growth cannot catch up with the home prices. As a matter of fact, soaring mortgage rates could be the only way to de-escalate these unsustainable outrageous home prices in some states.

 To finish, let’s remember numerous external factors are to be considered when observing Real Estate, currently the demographic wave of millennial homebuyers combined with the limited supply isn’t to be underestimated!

Comments (2)

Jeffrey DiMuria 321.223.6253 Waves Realty
Waves Realty - Melbourne, FL
Florida Space Coast Homes

I do not think it will make prices drop, but it will hurt the starter homes the most. This will likely have a trickle up effect that will flatten the market.

May 02, 2022 12:04 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Daniela Pellicciotti will have an impact on the ability of Buyers being able to qualify for the same price range they did even just a couple of weeks ago, but I do not see that slowing things down.  In fact I see my Borrowers in even more of a frenzy to purchase before they are priced out even further, and have to settle for a house in a lower price range.

May 02, 2022 12:42 PM