Highest Mortgage Rates Since 2008 Housing Crisis Cool Sales

For the past two years, anyone who has a home to sell has been able to get virtually any asking price. In cities and exurbs, it seems that enthusiastic buyers lined up everything on the market, good or bad.

Well, in a few weeks, the realtor has left From managing the bid war to seeing the property sitting without an offerAnd Austin, Texas, and BoiseIdaho, Ready for a big fall..

The culprit was the rise in mortgage rates, which surged to the highest level since the 2008 housing crisis in response to recent efforts by the Federal Reserve to curb inflation. Adding hundreds of dollars a month to typical mortgage payments, and a two-year rise in home prices, a surge in borrowing costs has pushed hopeful homebuyers beyond their financial limits. rice field.

Glenn Kelman, CEO of Redfin, a national real estate agent, said:

Homes (purchases that require huge debt to most buyers) are more sensitive to interest rates than any other part of the economy. If the house isn’t affordable, as it is today, its sensitivity is even more pronounced. As a result, home prices and new construction are central elements of the Federal Reserve’s efforts to slow rapid inflation with the central bank’s several interest rate hikes this year. However, the Fed’s move carries the inherent risk of a recession if it over-restrains home purchases and development activities.

Housing does not account for huge economic output, but it is a boom bust industry that has historically played a major role in the recession. The sector operates on credit, and new home purchases are often followed by new furniture, new appliances, and new electronics that are a key part of consumer spending.

Mark Zandi, Chief Economist at Moody’s Analytics, said:

House prices are still Recording level, And it can take months or more to fall. But that warning, often raised by realtors as a shield, cannot overturn the fact that demand has dropped significantly and market direction has changed.

Sales of existing homes declined 3.4% From April to May, according to the National Association of Real Estate Agents construction It’s down.A homebuilder who was analyzing inventory in an elaborate lottery says the pandemic list has shrunk to its current state. Lower the price Sweetener incentives such as cheap countertops and bathroom upgrades are meant to cross the line for buyers.

Aliwolf, Chief Economist at Zonda, a housing data and consulting firm, said: “The very rapid rise in interest rates and house prices proved that the theory was wrong.”

This turned out to be a major change for the market that blossomed shortly after the first shock of the pandemic, and for many it was the best time to buy a home. Solid mortgage rates have lowered borrowing costs, and the shift to home offices and zoom meetings have opened a new band for buyers who have struggled to penetrate the market near their former commuting jobs.

As a result, prices have exploded in remote exurbs and once affordable locations such as Spokane, Washington. People became willing to travel long distances to buy a home, and “the normal law of supply and demand did not apply,” Kelman said.

But after two years of sharp price increases, places that were once thought to be cheap are no longer.The values ​​of the house Approximately 40% increase According to Zillow, in the last two years, buyers have been forced to raise prices even further, even if they are geographically scarce.

Now add the mortgage rate. This has almost doubled this year. And inflation is eating up the savings of some families as it increases household costs. And the wobbling stock market Reduced value Of a portfolio that many buyers intend to use for down payment.

Larisa Kiryukhin and her family were priced long before the San Francisco Bay Area, where they lived for decades. Kiryukin, 44, is a medical assistant detained in a hospital, but her pandemic gives her husband, who works in her information technology, the flexibility to move to a more affordable city. rice field. There, Kiryukin changed jobs and moved to Tampa, Florida this year in hopes of her couple and two children buying a home.

In April, the family signed a contract at a $ 425,000 home, with an estimated interest rate of 4%. Later, the deadline was extended because the seller wanted time to find a new home. After that, interest rates soared, adding about $ 700 to monthly payments and the family withdrew.

“I moved here just to buy a house, and I’m going here: the price is too high to afford it,” says Kiryukhin.

According to Moody’s Analytics, a typical homebuyer earns about $ 70,000 a year. The $ 600 increase in housing costs per month is more than most people can afford for how much interest rate increases are added to regular mortgage payments.

Steve Silver, a realtor in Spokane, Washington, said there was a sharp decline in interest among buyers looking for homes under $ 500,000. He said these buyers were “pushed out of the market” when interest rates on mortgages went up because they usually had less cash.

Silver’s customers, Heather Lenz and her husband, were preparing to buy a home for $ 360,000. Lentz is the caregiver of her mother. To qualify for a mortgage, her husband, who works as a technician at an aerospace company, intended to withdraw money from his retirement account and increase the down payment. However, due to the recent stock market decline, the amount he can withdraw is less than what he needs to qualify.

“We were three-quarters of the process,” Lentz said.

According to the mortgage giant, interest rates on 30-year fixed rate mortgages have risen from 3.22 percent in the first week of January to 5.81 percent. Freddie Mac.. Part of that adjustment was to anticipate future Fed interest rate hikes. Authorities have shown a three-quarter percentage point increase in June alone, the largest increase since 1994, and similar major moves in July. Even more surprising is that mortgage rates can be even higher.

Inflation is at its fastest pace in 40 years, forcing the Fed to take aggressive policy action to bring it under control.

Higher interest rates slow down large-scale credit purchases, from homes and cars to office equipment, limiting demand, keeping up with supply and curbing price increases across the economy. increase.

Janna Smiarek Report that contributed.