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Rising mortgage rates price more buyers out of housing market - YouTube
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well rising mortgage rates have
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complicated an already perplexing
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housing market for potential home buyers
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that's right the record high interest
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rates come as the average price to
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purchase an existing home in the us
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reaches four hundred thousand dollars
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wow the average rate of a 30-year
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fixed-rate mortgage jumped to
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5.78 percent last week that is the
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highest rate since 2008. now climbing
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mortgage rates continue to put pressure
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on the housing market pushing the cost
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of home ownership even higher oh joining
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us now is george ratou he is a senior
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economist and manager of economic
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research at realtor.com
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welcome george boy you know you hear
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these numbers and you think who can
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afford you know to buy a house anymore
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30-year fixed mortgage rates continue to
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climb as the fed is of course working to
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cool inflation in turn housing prices
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have finally begun to fall but explain
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for people who don't know why
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this is necessary to balance out the
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market and cool rates
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sonia that's a great question and it's
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it's the question that i think is on the
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mind of not only financial markets but
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many consumers who are seeing really the
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the rates they're paying on credit cards
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personal loans auto loans and of course
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now house loans really rise up
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tremendously for the fed the task this
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hand is quite simple in the wake of the
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tremendous monetary easing that the fed
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put in place during the pandemic to
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really provide the floor to the economy
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and financial markets
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all this money that's you know ended up
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in the economy in addition to the broad
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economic shocks right we saw supply
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chain issues we saw goods be stuck in
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ports not being able to travel over the
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last two years all of these have put
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tremendous pressure on prices we're
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paying more for gasoline day care
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clothing and so on so now the fed's job
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is to really raise their overnight the
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short-term rate in order to make
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borrowing costs more expensive and
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actually cool demand for a lot of loans
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intrinsically that's going to in in the
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fed's view going to bring inflation down
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the trouble is that in this interim
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period consumers and especially home
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buyers are facing tremendously uh quick
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rising costs today's freddie mac rate at
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5.81 for the 30-year loan actually is
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pushing the monthly mortgage payment 800
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dollars higher than a year ago that's a
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64 jump a huge for most home buyers
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really daunting to hear that and so the
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federal reserve will most likely raise
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interest rates by 50 or 75 basis points
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in july so george how is this going to
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work do you think this will depress the
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housing market or is this necessary then
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to actually open the door for more
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people who actually want to buy a home
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ellen that's that's a critical point and
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i'm glad you raised it that the truth is
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the housing market is absolutely in need
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of a reset
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the the the housing
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performance we saw in 2020 particularly
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the second half in 2021 is not a healthy
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or sustainable market the overheated
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pace the competitive nature multiple
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bids not sustainable so in essence these
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high rates are very much helping cool
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the housing market and the good news is
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here many people were worried about a
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bubble we're actually seeing markets act
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rationally so if anything i see this
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cooling of demand combined with what
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we're seeing in realtor.com data we're
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actually seeing homeowners put their
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homes for sale some of them to move
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forward with pandemic delayed plans
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others to cash in on this prices but the
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result of this increased supply plus
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higher rates is actually showing price
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growth moderating and that to me is the
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really welcome news in the data in that
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it shows me that in the second half of
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this year home buyers might actually
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have a lot more options and a different
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market environment i know a lot of home
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buyers will welcome that i especially
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think of like first time home buyers and
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how hard it is to get your first toe in
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the in the door right so you know the
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median household income was 67
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521 dollars in 2020 right so what
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options would a typical family have to
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get a loan for a four hundred thousand
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dollar home while also dealing with
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inflation and worrying about the
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possibility of a recession
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that uh tania is is a critical question
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for so many households today
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particularly because they are they are
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hemmed in by so many other costs right
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the um cost of of price you know
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gasoline and everything else rising
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obviously at the medium price we look uh
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we produce a
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distribution affordability distribution
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score and we look at that median
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income of the market about 27 of current
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listings on realtor.com are actually
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affordable to that median income which
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is not a lot so i think for a lot of
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households the the name of the game in
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this market is to number one make sure
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that your finances are straight make
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sure you get a pro approval letter make
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sure that your credit cor score is in
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tip top shape and then ultimately
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depending on your plans another key
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component think what your time horizon
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is do you plan to be in the current city
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in your neighborhood wherever you're
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looking to buy
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for at least three to five years i would
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say consider the housing choices
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available to you but don't stretch your
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budget this is going to obviously be a
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dynamic market and even the economy
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broadly speaking is feeling pressures if
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you plan to live
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in fewer uh you know years than that i
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would say you might be better off
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waiting
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yeah there's so many americans george
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who are really looking for any bit of
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guidance whether it's buying a home or
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even just trying to make budgeting plans
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for the next few months
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george ratou really good to have your
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advice thanks so much for joining us
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good to be with you today thank you
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