Rising Mortgage Rates: What They Mean for Utah’s Housing Market and Homebuyers

BY LINDA ROSE, BANK OF UTAH VICE PRESIDENT, MORTGAGE BRANCH MANAGER

Spring is usually one of the best seasons to purchase a home. The warm weather draws out sellers and buyers both. More houses go on the market, and more people are there to buy them up … ordinarily. The last few years have been anything but ordinary, however.

The pandemic brought in historically low mortgage interest rates. That tends to be a good thing for homebuyers, but it also drives up demand because it makes the purchase more affordable for more people.

The competition to buy has been especially fierce in Utah for a number of reasons. One, the pandemic brought in an influx of people from other states (because they could work remotely and Utah’s economy was stable and attractive). Two, Utah is about 45,000 housing units short of where it needs to be for its growing population. (Those are just a few of the reasons.) This means that:

Utah’s housing market has been scorching hot year-round — not just in the spring.

One factor driving up demand is changing, though. Mortgage interest rates are increasing. Why? The Federal Reserve — America’s central bank — has increased the Fed Funds rate twice this year to combat rising inflation. Higher interest rates mean higher borrowing costs, which means people spend less. As a result, the demand for goods and services declines, which causes inflation to fall.

As a quick side note: The Federal Reserve does not set mortgage interest rates. The Fed Funds rate is different from a mortgage interest rate, but they typically move in the same direction, which is why mortgage interest rates have increased too.

Ordinarily, rate increases would translate to home sales slowing, but again, it’s not an ordinary time. With such a low housing inventory, and with people continuing to move to the Beehive State for employment opportunities, the demand for homes in Utah will remain high.

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