The housing market has been in a slow recovery as the interest rates have remained at nearly zero percent for almost seven years. The Central Bank has been hinting for a year now that they will be raising interest rates, even though many are skeptic that this would happen, this will greatly impact the housing real estate sector.
In a report published in The Guardian, Federal Reserve chair Janet Yellen expects U.S. interest rates to be raised by the end of the year. In a speech, she has mentioned that inflation will gradually drive the target rate of 2 percent as the "unusually low oil price rises and strong dollar weakens."
According to CNBC, this will affect the housing market negatively even if the Fed will not shock the market with a steep increase in rates. Svenja Gudell, Zillow's chief economist commented, "I don't think we'll see rates jumping up tremendously, we'll see them growing over time."
Moreover, Zillow data shows that home values are growing rapidly since November 2014. The rise was up by 4.3 percent. "We're seeing home value appreciation still at a very robust rate. The problem right now is low inventory and that's really driving up these home values," Gudell added.
According to CNBC though, buyers may respond even more differently once the central bank raises interest rates. In Gudell's opinion, it is a seller's market currently, she said, "It's tough for buyers now in general. For most people right now it's a seller's market." She believes that recovery in housing is being driven by hot markets like Denver, Dallas, Seattle and the Bay Area. But they will cool off when interest rates increase and home prices appreciate slower.
Speaking of which she said, "That's where home values could essentially go flat or we might even see some declines. You can't spend much more on a home once your buying power is reduced so much by higher rates."
