Rising Mortgage Rates Prevent Millions From Buying Homes
The US real estate market was already tough for would-be buyers, who have faced double-digit price increases and fierce competition for listed properties. Now they face another challenge as rising mortgage rates add to the affordability squeeze.
The median mortgage rate rose to 4,42% during the week ending March 24, according to Freddie Mac. That's a jump of more than a percentage point from January 2022, when rates hovered around 3,2%. The current rate is the highest homebuyers have seen since March 2019.
The higher rate translates into significant costs for homebuyers. For a median priced home, a 4,4% rate on a 30-year fixed mortgage would cost someone an extra $250 a month, compared to a buyer who bought in January when the rate was around 3,2 %, according to Nadia Evangelou, senior economist and forecasting director at the National Association of Realtors.
That jump in housing costs is excluding millions of potential buyers from the market, he added. “Since the beginning of the year, about 7,9 million households have already lost price due to higher mortgage rates,” he said in an email to CBS MoneyWatch, adding that “2,5 million of these households are millennials. ”.
In turn, list prices re-accelerated after the reprieve experienced during fall 2021, reaching a new high of $392,000 in February, based on @RDC_Economics data.
— George Ratiu (@GeorgeRatiu) March 25, 2022
The rapid rise in home prices during the pandemic has pushed the dream of home ownership beyond the means of many middle-class Americans, who are increasingly competing against investors and higher-income buyers for a limited pool. household.
In February, the median US home listing price rose nearly 13% to $392 from a year earlier, Realtor.com said earlier this month. Only about 000% of renters who are millennials, whose generation is now the biggest homebuyer, can afford to buy a starter home at current rates, down from 40% a year ago, Evangelou said.
Real estate market cools down fast
Still, some cracks are emerging in the real estate market. For one thing, the Pending Home Sales Index, which tracks signed contracts for existing home sales, fell 4,1% in February, which experts say is due to affordability issues as well as lack of inventory. The number of active listings fell nearly 25% in February compared to a year earlier, according to Realtor.com.
"Pending home sales follow demand for mortgages, which has been falling rapidly since the turn of the year, and is nowhere near the bottom given the continued rise in mortgage rates," said Ian Shepherdson, chief economist at Pantheon. Macroeconomics, in a research note. "The housing market is cooling down very quickly and sales are expected to drop 20% to 30% by the middle of the year."
Buyers are also facing a triple whammy: Not only are housing and loan costs higher now, but inflation is at its highest level in four decades. The typical household is likely to face additional costs of $2,000 this year due to high gas prices, money that will erode their ability to spend on other goods and services.
"For buyers looking for a home, the higher price came at the same time that accelerating #inflation not only squeezed more out of every paycheck, but also pushed up mortgage rates," said George Ratiu, senior economist at Realtor.com on Twitter. "The net effect, especially for first-time buyers, was lower budgets and fewer options."
Author: Patricia Chung 8:25 pm