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- Housing experts see no clear end to rising mortgage rates.
- “It may take another year or two for that to happen,” says the top economist at the National Realtor Group.
- Fed Chairman Jerome Powell believes the housing market has been “substantially weakened” by higher mortgage rates.
With the Federal Reserve adding another rate hike and mortgage rates skyrocketing to well above 7%, housing experts are pondering the next move in a volatile market. increase.
“This process will take time. It won’t magically change everything anytime soon,” said Beth Friedman, CEO of New York City real estate firm Brown Harris Stevens, shortly after the Fed hiked rates. told USA TODAY.
“The mortgage market has already priced in the latest Fed move,” said Lawrence Yun, chief economist at the National Association of Realtors, in a statement. , which is hurting homebuyers.” “If inflation is contained, mortgage rates will start to fall. It may be another year or two before that happens.”
Dan Richards, executive vice president of mortgages at Flyhomes, agrees with Yun that mortgage rates are unlikely to go down anytime soon.
“If Chairman Powell says he won’t change plans, rates are likely to stay the same,” Richards said.
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Powell: Housing Market ‘Significantly Weakened’
Expert comments came as the Fed raised its benchmark interest rate by 75 basis points for the fourth consecutive time. As a result, Fed Chair Powell said at a press conference last week that “the housing sector activity has weakened significantly, largely reflecting higher mortgage rates.”
Powell emphasized the Federal Reserve’s stance that mortgage rates are actually driving home prices down in certain markets, but didn’t give specifics. But George Ratiu, economic research manager at Realtor.com, tells USA TODAY that house prices are falling in several of the top 50 market cities, including New Orleans, Pittsburgh and Birmingham, Alabama. .
“This shows that demand has fallen sharply,” Latiou said. “Inventory continues to rise slightly as more homes are on the market for longer as a result.”
Annual home price growth is expected to slow to 10% by December, half of the 20% surge peak recorded in April, according to CoreLogic’s latest home price index forecast.
Investment firms Goldman Sachs, Moody’s Analytics and Morgan Stanley said they expect house prices to fall 5% to 10% next year.
“The housing market has been very overheated in the years since the pandemic because of increased demand and low interest rates,” Powell told reporters last week. I know the story of it going up, so many bidders with no conditions, that sort of thing.
“Therefore, the housing market needs to rebalance supply and demand,” Powell concluded.
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Homebuyers are hitting a ‘financial ceiling’
Finding the delicate balance between low housing supply and high demand will continue to be a challenge for both the Fed and the housing industry.
Pointing to one of the hottest markets in the U.S., the Northeast, particularly the Boston metropolitan area, Ratiu said, “Prices are falling in certain metropolitan areas, whether they’re migrants or seasonal. Meanwhile, there is still strong demand and willingness to buy homes in other markets.”
Ratiu and Nadia Evangelou, senior economist and director of forecasts for the National Association of Realtors, also said homebuyers are paying about $1,000 more in mortgage payments than they did a year ago.
For example, according to Ratiu, a house priced at $427,000 would pay a $1,400 mortgage at a 3% interest rate and a 20% down payment at one-year interest rates. At 5%, the mortgage will be $1,800. But at 7% now, the mortgage has ballooned to about $2,300, Ratiu said.
“This does not include home insurance or HOA (Homeowners Association) fees,” said Ratiu. “Currently, buyers are reaching their financial limits when it comes to how homes are priced.”
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Mortgage rates ‘not likely to fall until 2024’
Powell’s sentiment was echoed by Federal Reserve Vice Chairman Lael Brainard in the Fed’s latest Financial Stability Report.
“Today’s environment of rapid and synchronous monetary policy tightening, rising inflation, and high uncertainty related to global pandemics and wars heightens the risk that shocks will lead to the amplification of vulnerabilities. For example: Liquidity strains in core financial markets and hidden leverage,” Brainard said.
Reuben Gonzalez, chief economist at real estate tech real estate firm Keller Williams, said the Federal Reserve’s interest rate hikes are unlikely to ease a real estate market that has already been hit by rising mortgage rates for months. said low.
“As the Fed continues to battle inflation, the housing market will continue to slow as one of the most interest rate sensitive industries. Default rates remain near all-time lows. Markets are calm,” Gonzalez said. “Mortgage rates are unlikely to fall until the second half of next year, but they are more likely to fall until 2024,” he said.
Andrzej Skiba, head of U.S. Fixed Income at RBC Global Asset Management, said it was “premature” for the Fed to consider a rate moratorium after Powell’s “hawkish” stance. He said it made me think he was thinking.
“So the Fed’s cavalry may not come to the rescue in 2023,” Skiba said.
Robert Dietz, chief economist at the National Association of Home Builders, expects the Fed to ease interest rates by 2024 at the latest, arguing that the market will be “weak” in 2023 until then.
But Realtor.com’s Ratiu said:
Powell is hedging his bet that inflation will fall if the Fed “can raise borrowing costs to dampen the ability of consumers to spend more,” Latiu said. Stated. According to the US Bureau of Labor Statistics, the current inflation rate he is 8.2%. Next update will be Thursday.
“If that bet proves correct, inflation will probably be more moderate, removing the pressure on higher mortgage growth rates.” Loan rates will rise from 3% in January to more than 7% in nine months, reversing this mad dash that has handicapped the housing market.”
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