Housing demand grows with mortgage rates expected to climb
As potential homebuyers anticipate mortgage rates to keep rising, September was the third-strongest month for housing demand in 2018, according to Redfin's Housing Demand Index.
The Fed is expected to raise rates again in December, then multiple times in 2019. With that as the forecast, demand could continue moving upward.
While the index fell 10.2% year-over-year to 130.9 from 145.8, it increased 5.1% month-over-month from August's 124.5. Historically, demand rises in September from August, seeing an average growth of 3.2% over the past five years. Thus far for 2018, the index peaked at 138.1 in January.
"There are a couple of explanations for the increase in buyer activity from August to September. One is that rising mortgage rates motivated some buyers to look for a home before rates rise again. Second, inventory usually falls from August to September, but this year it rose 0.7%, giving buyers more homes to choose from," Daryl Fairweather, Redfin chief economist, said in a press release.
One reason for the inventory inching up is the recent trend of house hunters seeking affordability and choosing inland metros over the more popular markets of yesteryear.
"In metros like San Francisco and Boston where inventory has increased, buyers are interested in exploring all of their options. However, research by psychologists has shown that when people are faced with more options they have a harder time making a decision for fear of making the wrong, or suboptimal, decision. This phenomenon is reflected in the fact that touring activity increased more than offer activity as supply increased," said Fairweather.