- Housing experts see no clear end to rising mortgage interest rates.
- “It may be a year or two before that happens,” says the chief economist for the national group of realtors.
- Fed Chairman Powell believes the housing market has “significantly weakened” due to higher mortgage rates.
As the Federal Reserve added another interest rate hike by sending mortgage rates soar well above 7%housing experts are pondering what’s next for the market that shows some instability.
“This process will take some time, not everything is going to magically change in a minute.” Bess FreedmanCEO of real estate firm Brown Harris Stevens in New York City told USA TODAY shortly after the Fed’s raise.
In anticipation, “the mortgage market has already priced in the Fed’s latest move. Still, mortgage rates are near 20-year highs, and that’s hurting homebuyers.” lorenzo yun, chief economist for the National Association of Realtors, said in a statement. “Once inflation is contained, mortgage rates will start to come down. It may be a year or two before that happens.”
dan richardsexecutive vice president of mortgages for flying housesa startup that helps qualified buyers get homes by offering all-cash deals to sellers, agrees with Yun that mortgage interest rates likely won’t go down for some time.
“If Powell says he won’t change his plan, tariffs are likely to stay where they are,” Richards said.
THE FED IS UNPOPULAR ON SOCIAL MEDIA:‘It’s Going To Be Tough’: Fed Rate Hikes Spark Backlash As Hot Topic Online; to study
THINK TWICE:The US housing shortage is ‘terrible’ and likely to get worse with no apparent end in sight
Powell: Housing market has ‘significantly weakened’
The pundits’ comment comes as the Fed raised its benchmark rate by 75 basis points for the fourth consecutive time. As a result, “activity in the housing sector has weakened significantly, largely reflecting higher mortgage rates,” Powell said during a Press conference In the past week.
Powell supported the Fed’s position that mortgage rates were actually driving down home prices in certain markets without elaborating. Nevertheless, jorge ratiuRealtor.com’s economic research manager, tells USA TODAY that some of its top 50 market cities, including New Orleans, Pittsburgh and Birmingham, Alabama, are seeing home price declines.
“What this tells me is that demand has dropped very sharply,” Ratiu said. “As a result, we’re seeing inventory continue to grow slightly as more homes stay on the market longer.”
Annual house price growth is expected to slow to 10% in December, half the peak of 20% recorded in April, according to the latest CoreLogic Home Price Index forecast.
“The housing market was very overheated for a couple of years after the pandemic as demand was up and rates were low,” Powell told reporters last week. “We all know the stories of how overheated the housing market was, prices were going up. Many, many bidders and no conditions, that kind of thing.
“So the housing market needs to get back into balance between supply and demand,” Powell concluded.
FIX IT OR OTHERWISE:Home buyers are rejecting more offers than ever because of “small” problems. What is a seller to do?
LOCKED?:Real estate market correction? This is what experts believe is coming for the real estate market
Home buyers have reached a ‘financial ceiling’
Finding that delicate balance between low housing supply and high demand will continue to be the challenge for both the Fed and the housing industry, Ratiu said.
“While prices will fall in certain metropolitan areas, whether due to migration or seasonality, in other markets there is still strong demand and willingness to buy a home,” Ratiu added, citing the Northeast and specifically the Boston metropolitan area among the hottest markets in the US
Furthermore, Ratius and Nadia Evangelousenior economist and forecasting director for the National Association of Realtors, say homebuyers are paying about $1,000 more in mortgage payments than they were a year ago.
For example, Ratiu said that a house priced at $427,000, the interest rate a year ago would have a mortgage payment of $1,400 with an interest rate of 3% and a down payment of 20%. At 5%, the mortgage becomes $1,800. But at the current 7%, the mortgage comes to about $2,300, Ratiu said.
“And that doesn’t include homeowners insurance or HOA (homeowners association) fees,” Ratiu said. “Buyers have reached a financial ceiling in terms of the way houses are priced now.”
FALLING FAST:Why is the number of first time homebuyers dropping dramatically and what is being done?
FLIGHT WITHOUT END IN SIGHT:Rents are rising at the fastest rate in 40 years. Why it’s bad for inflation, the Federal Reserve, and you.
Mortgage interest rates are “not likely until 2024”
Powell’s sentiments were echoed by Federal Reserve Board Vice Chairman Lael Brainard in the Latest Fed Financial Stability Report.
“The current environment of rapid and synchronous tightening of monetary policy, high inflation and high uncertainty associated with the global pandemic and war increases the risk that a shock could lead to the amplification of vulnerabilities, for example due to liquidity tightness in core financial markets or hidden leverage,” Brainard said.
As a result of the Fed’s hikes, housing markets that have already been hit by higher mortgage interest rates for several months are unlikely to see any relief, he said. Ruben GonzalezChief Economist at Keller Williams, a real estate technology real estate company.
“As the Fed continues to combat inflation, the housing market will continue to slow as one of the most interest rate sensitive industries. Homeowners’ equity levels are high due to rapid appreciation, and Mortgage default rates remain near record lows as markets cool,” Gonzalez said. “It’s unlikely we’ll see mortgage rates come down until the second half of next year, but more likely not until 2024.”
andrzej skibahead of US fixed income at RBC Global Asset Management, said Powell exhibited a “hardline” stance that makes him think the Fed believes it is “very premature” to think about pausing rates.
“So the Fed cavalry might not come to the rescue in 2023,” Skiba said. “It’s not a surprise”.
Robert Dietzthe chief economist for the National Association of Home Builders, predicts the Federal Reserve will cut interest rates no later than 2024 and says the 2023 market until then “will be weak.”
However, Realtor.com’s Ratiu said, “I’m a bit more nuanced, as I see mortgage rates flattening out over the next six months, whether they stabilize at 7% or 7.5%.” .
Ratiu said Powell is hedging his bets that if the feds can get “higher borrowing costs to reduce consumers’ ability to spend more,” inflation will subside. The current inflation rate is 8.2%, according to the US Bureau of Labor Statistics. The next update is scheduled for Thursday.
“If that bet proves correct, inflation will likely be more subdued and may ease pressure on mortgage rate hikes,” Ratiu said. “I’m not saying it’s ideal, but it will pull back from this crazy race where the mortgage rate rate went from 3% in January to over 7% nine months later and has hurt the housing market.”