As mortgage interest rates have risen, our local Middle Tennessee housing market has cooled but definitely not stalled. Following supply, an indicator of how many months worth of houses buyers have to choose from, we are still very much in a seller’s market.
Middle Tennessee’s pre-pandemic market was strong with high demand, low inventory, and historically low interest rates. Starting in 2020, lower interest rates made borrowing less expensive than ever before. That kicked off an even stronger Seller’s market. Supply dropped as interest rates dropped. It truly was a buying frenzy by 2021.
More recently, the Federal Reserve’s actions to slow down our economy have cooled our local market. Summer 2022 brought interest rates in the 5’s. Summer 2023 brought interest rates in the high 6’s and low 7’s. However, despite the more expensive cost of borrowing, our summer 2023 supply somewhat resembles summer 2018. We are still in a Seller’s market, thought it has cooled off a bit.
Mortgage Interest Rates
Higher interest rates cool housing sales in two ways. First, homeowners are incentivized to hold onto mortgages with low interest rates, and so less homes are added to the market.
Second, they lower the buying power of Buyers who are financing. Some Buyers will lower their price ranges, but that will increase demand for lower priced homes. Some Buyers will pause their searches to wait for more favorable interest rates or lower prices, although neither can be counted on. Some Buyers will remove themselves from the search altogether, seeing a home purchase as out of reach.
Federal Funds Rate
Not to be confused with mortgage interest rates, the federal funds rate is how much interest banks charge when they borrow from each other. The Federal Reserve uses the federal funds rate to slow down or speed up our national economy. While not the same as mortgage interest rates, the federal funds rate greatly influences mortgage interest rates. he Federal Reserve lowered the (already low) federal funds rate during the early days of the pandemic to keep our national economy rolling. However, to slow down inflation, the Fed has steadily raised rates since March 2022.
Seller’s Market
A Seller’s market is defined as one with less than a four month supply of available homes.
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Every neighborhood is its own market, uniquely reflecting both rising interest rates and our local housing shortage. If you’re curious to know how your area is doing, I would love to talk with you about it.