Recent data shows that skyrocketing mortgage rates have helped put the brakes on the housing market.
Mortgage rates rose to their highest level in 21 years last week, according to Freddie Mac data. The 30-year fixed-rate mortgage averaged 7.09% in the week ended Thursday, after maintaining levels above 6.5% since May.
Meanwhile, the home resale market hit its lowest rate since 2010 in July, according to data from the National Association of Realtors.
Analysts said housing prices remained high due to supply constraints, hampering home buying as potential buyers grappled with the twin pressures of high borrowing costs and exorbitant listing prices.
He added that the dynamics are unlikely to change significantly in the coming months, as both home prices and mortgage rates are expected to remain at or around current levels.
Comparing the current market to the low-mortgage rate environment created during the COVID-19 pandemic, Bess Friedman, CEO of real estate firm Brown Harris Stevens, told ABC News: “It’s not champagne and caviar anymore. The party is over.” ” ,
“Buyers are confused and are struggling with a lack of inventory and high mortgage rates,” Friedman said. “The next few months will probably be like this.”
The Federal Reserve has been aggressively raising interest rates as it tries to reduce inflation by slowing the economy and reducing demand.
This means borrowers face higher costs for everything from car loans to credit card debt and mortgages.
30-year fixed mortgage cost on a $200,000 loan
Mortgage News Daily data shows that when the Fed implements the first rate hike of the current series in March 2022, the average 30-year fixed mortgage is just 4.45%.
According to Rocket Mortgage, each percentage point increase in the mortgage rate can add thousands or even tens of thousands of additional costs each year, depending on the price of the home.
“It’s all about the Fed,” Lawrence Yoon, chief economist for the National Association of Realtors, told ABC News.
Many homeowners resist selling because they don’t want to give up their relatively low mortgage rates, Yun said, while some buyers are scared off by additional borrowing costs.
If interest rates rise further, it will make the “logjam” worse, he added. If the cost of borrowing falls, this can lead to a flood of buyers and sellers in the market.
“Cutting interest rates will immediately lead to a reduction in mortgage rates,” Yun said.
Federal Reserve Chairman Jerome Powell attends a news conference on July 26, 2023 in Washington, DC.
Elisabeth Frantz/Reuters, File
In theory, higher mortgages should lower housing prices, because the extra borrowing costs raise the total cost of homes and scare away buyers, University of Washington real estate professor Greg Coburn told ABC News.
Coburn said, however, that prices remained under downward pressure due to supply constraints in some areas.
“Prices stay high because of the scarce supply that otherwise would have kept prices high in a situation of high interest rates,” Coburn said.
Zillow senior economist Orphee DiVongue told ABC News that in addition to economic forces slowing activity, the housing market cools off during the decline months.
“It’s just the seasonality of the housing market — it’s normal,” DiVongue said. “I expect that to slow down a bit over the next few months, especially with mortgage rates where they are.”
Nevertheless, DiVongue signaled optimism, stating that a strong influx of new homes is expected to come online in the coming months, helping to narrow the imbalance between supply and demand. This can help reduce the burden on home buyers, he added.
“Buyers are going to get a little bit more breathing space,” he said.
Analysts said potential home buyers should weigh their budget and urgency against market conditions, noting that the right home can be found even during slow periods.
Friedman said, “Even in crisis there are opportunities.”
Yoon cautioned that a hot, low mortgage rate market might not lead to a better deal in the future.
Yun said, “There will probably be more options.” “But lower interest rates mean more buyers. I would say to consumers, don’t stretch your budget too much but look at any new listings that come up. You might get lucky and there are no buyers.”