Mortgage rates rise, but housing market remains hot
On Tuesday, the National Association of Realtors will release the latest existing home sales data. The numbers should provide a closer look at the big shift underway in the US housing market as mortgage interest rates continue to rise.
The real cost of buying a house is skyrocketing, according to Lawrence Yun, the association’s chief economist.
“The same house, buying now versus a year ago, you’ll increase the monthly mortgage payment by about 50 percent.”
That’s because house prices keep rising, so buyers need to get bigger mortgages. And interest rates on those mortgages are now around 6%, down from around 3% a year ago.
“We were just waiting for that to happen, where mortgage rates would go up and reduce what I would call artificially strong activity on the buy side,” said Brad Dillman, chief economist at Cortland.
The impact of the Federal Reserve’s campaign to raise its benchmark rate is still being felt. Lately, Redfin chief economist Daryl Fairweather has used the term “hibernation” to describe this changing housing market.
“Just in terms of, like, the little activity that’s going on right now for buyers and sellers,” she said.
The data shows that the number of pending sales is down 8% from last year, thanks in large part to these higher mortgage rates. But, she added, this is not a weak housing market.
“Homes are selling as fast as ever. Fifty percent of homes are still under contract within two weeks,” Fairweather said.
Buyers are adapting to the rapid pace of change, said Jonathan Miller, CEO of real estate appraiser Miller Samuel. But the sellers?
“It’s hard for them to capitulate to market conditions because they’re kind of value-driven, and then all of a sudden the conditions change,” he said.
Miller added that a market in which bidding wars for homes have become the norm is simply not sustainable.
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