By Sean Colón

Hey Arizona Realtors, buckle up! We're about to dive into the whirlwind of changes that the Federal Reserve's recent interest rate announcement has set off in our state's real estate market.

The Shocking Spike in Mortgage Rates

Hold onto your hats, because the news isn't all sunny in the Grand Canyon State. The latest data from Freddie Mac has left many eyebrows raised and phones ringing off the hook. The average 30-year fixed-rate mortgage APR reached a whopping 7.09% in the week ending August 17. This rate surge has left the real estate world spinning – a dramatic climb from the 5.13% noted just a year ago. The numbers don't lie, and they're painting a clear picture: rates have been soaring above 6.5% since late May, with no signs of slowing down.

How the Fed's Moves Are Shaping Our Future

Let's face it – the Federal Reserve is wielding some serious influence over our market's destiny. Their relentless rate-hiking campaign has led us to the doorstep of the lowest home affordability levels in decades. Yes, you read that right. The higher mortgage financing costs are giving buyers quite a challenge, and even those who once enjoyed lower rates are thinking twice about selling their homes. And guess what? This dynamic duo of high costs and low inventory has knocked home sales down by around 20% compared to the previous year.

Sam Khater, the Chief Economist at Freddie Mac, shines a spotlight on this issue. He points out that the surging economy and the rising 10-year Treasury yield are the culprits behind the mortgage rate hike. But here's the kicker: while affordability struggles are impacting demand, the ultimate culprit behind the slowdown in home sales is the lack of available housing.

Higher Rates, Bigger Challenges

The hike in rates isn't just a minor bump in the road. We're looking at a trend that's sending shockwaves through Arizona. These rising rates are marching in tune with the surge in 10-year Treasury yields – something we haven't seen since 2007. This growing economy has its perks, including job security and higher incomes for many Arizonians. However, it's also fueling the Federal Reserve's determination to wrestle inflation to the ground this year. And with core inflation measures hanging stubbornly above 4.0%, you guessed it – more rate hikes are lurking around the corner.

What Does This Mean for You?

In a nutshell, this trend isn't here to play nice. If you're working with buyers, rising borrowing costs may deter your clients from taking on a new mortgage. The 2023 pattern reveals a rate leap of a whole percentage point, and compared to the previous year, rates are up by nearly 2 percentage points. This translates to significantly heftier monthly mortgage payments. For instance, a median-priced home that once sported a $1,300 monthly mortgage payment with a 3.1% mortgage rate is now demanding a hefty $2,300 a month. Yikes!

While those already in the homeowner club can use their high home prices as a cushion against these rising mortgage rates, newcomers to the market are facing a more uphill battle. And with rents taking a breather, first-time buyers might not feel the same urgency they did before.

Making Sense of It All: The Arizona Edition

Arizona, we're in this together! If you're looking to buy or refinance your home in the midst of this whirlwind, fret not. There are options to explore:

• Conventional Mortgages: A minimum credit score of 620 and a DTI ratio under 43% are the tickets to this option.

• FHA Loans: If a conventional mortgage isn't your jam, FHA loans might welcome you with a minimum credit score of 580 and a down payment as low as 3.5%.

• VA Loans: For our veterans and active-duty military, a VA loan doesn't require a down payment or mortgage insurance, but you'll face a starting funding fee of 2.15%.

And wait, there's more! Arizona's got a first-time homebuyer program – the HOME+PLUS Home Buyer Down Payment Assistance Program. This program doesn't just offer you a loan but also a helping hand with a down payment assistance of up to 5%.

Stay Ahead of the Game

Now, Realtors, it's time to shine. As the market dances to the rhythm of these interest rate changes, it's your expertise that will guide buyers and sellers through these uncertain times. Stay informed, stay creative, and most importantly, stay ready to adapt. Remember, even a roller coaster has its thrilling moments – and Arizona's real estate market is no different.

By the way, I help realtors improve their online presence by providing beautiful photos of their listings. That is why I’ve created this FREE HOME PREP LIST for your clients to help your listings look their best. Feel free to share.