RICHMOND, Va. (WRIC)–Rising interest rates appear to be cooling off the housing market in Virginia. 

On Wednesday, the Federal Reserve approved a third consecutive hike of three-quarters of a percentage point, an effort to drag down stubbornly high inflation and lower consumer demand. 

But the rapid rise in interest rates is also increasing monthly mortgage payments for potential home buyers. 

It means buyers aren’t getting as much bang for their buck, according to Virginia REALTORS Chief Economist Ryan Price. 

“As these mortgage rates increase it is pricing a lot of folks, particularly a lot of the first-time home buyers, out of the market,” Price said.

Price said that’s one reason why home sales in Virginia are dropping. He said sales activity in August 2022 decreased by roughly 20 percent compared to the same month last year. 

That’s a trend that has persisted for several months as a previously overheated housing market settles. Price projects that Virginia’s sales activity will drop by an overall 15 percent in 2022 compared to 2021. 

“It is quite a big change and it is the sharpest that we have seen in more than a decade,” Price said. 

Meanwhile, median home prices are still climbing, up by nearly 6 percent statewide last month, and inventory remains low, according to Price.

“There are some early indications that we’re having a little bit of a build up of the supply that’s out there on the market. Homes are staying on the market a little bit longer than they have in the past,” Price said. “That being said, it’s still quite low compared to where a more balanced market would be.” 

Price said buyers who are able to stomach the increase in mortgage rates may benefit from less competition in the housing market, compared to the intense bidding wars that became commonplace earlier in the pandemic. 

AJ Shriar, who just moved back to Richmond, is hoping to get a better bargain by delaying his home search for a few months. He is renting in the meantime. 

“There is a very good chance prices are going to come down as interest rates go up. That’s not uncommon. Also, the inventory seems to be growing,” Shriar said. 

Generally, Price doesn’t recommend trying to time interest rates. For those struggling to qualify for a loan, he said focus on paying down debt, expand your search and adjust your expectations. 

“I think it’s not a matter of timing with the rate. It’s more about whether you can find a home in this low supply environment that fits your needs,” Price said. 

As some fear a sharp economic downturn is near, Price doesn’t expect a 2008-style housing crash because of a few key differences. He said credit standards are tighter compared to 2008. Plus, he said home inventory and unemployment rates remain low. 

“While there could be a moderation in the market, a cool down, we do think it’s a much different situation than the crashing that we had in 2008,” Price said.