Indiana Daily Student

Increasing mortgage rates lead to less affordable housing in Monroe County

<p>A &quot;for sale&quot; sign is seen Nov. 16, 2022, on East Third Street. The housing market in Bloomington has slowed since the rise of interest costs. </p>

A "for sale" sign is seen Nov. 16, 2022, on East Third Street. The housing market in Bloomington has slowed since the rise of interest costs. 

Growing mortgage rates in Monroe County are reducing buyers’ ability to purchase homes. The 30-year fixed-rate mortgage in Indiana increased from 3% at the beginning of the year to more than 7% throughout the year. 

The rising mortgage rates are not restricted to Monroe County or even Indiana. Across the country, mortgage rates have been rising due to economic inflation and the Federal policy of increasing mortgage rates to slow down the economy to reduce record inflation, according to a Forbes Magazine article. 

“I knew mortgage rates were more expensive now, but I didn’t know they had increased that much,” IU junior Alida Flores said. 

Ryne Shadday, a real estate agent at Trueblood Real Estate in Bloomington, said higher mortgage rates mean borrowers would have to pay hundreds of dollars more in interest per month for fixed rates. The increased expenditure could also cause some prospective buyers to search for homes of lesser quality that now meets the demands of their price ranges, which would have afforded them better homes a year ago.  

Shadday said some buyers are being more cautious and waiting to see what happens with the economy before committing to purchasing a home, as a result of economic uncertainty and higher mortgage rates. Because there are fewer offers than in 2021, houses are spending more time on the market.  

Mortgage rates in 2021 fell to 2.65% in Indiana, which led to a highly competitive market for future home buyers, Shadday said. Given the large demand for homes in Monroe County, buyers were willing to pay more for houses without proper inspections and appraisals. Now that rates have increased more than they have in the past decade, buyers and sellers are being more cautious with the quality of the homes on the market. 

He said each year, October through February are typically slow months for home purchasing. This helps prospective buyers get more leverage in negotiating home prices with sellers since the demand is not as prominent for new homes. This puts pressure on potential sellers to improve the condition of their homes before closing a deal. The lower demand during the slower months this year is also based on buyers being more cautious and sellers not being able to find buyers as easily due to the increased mortgage rates. 

“While I don’t have a crystal ball, the general thinking is that interest rates will eventually decrease when the economy begins to cool off,” Shadday said. “Though, if a recession hits and interest rates decrease, it typically won’t make a difference in what is available to buy or sell.” 

Danny Key, a real estate agent from Brown County Real Estate, said in an email that before the increase in fixed-rate mortgages in Indiana, the market had many buyers even with a record low inventory. Since the increase in mortgage rates, the demand has decreased and about one-third of buyers have walked away.

Despite the high mortgage rates this year and the insecure market of home buyers and sellers, many people believe mortgage rates will decrease back to consistent levels seen before 2021 within the next year.  

“Inventory is increasing, and buyer demand is steady,” Key said. “2023 will be a great year in real estate.”  

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