Mortgage rates are rising for the first time since the week of May 30, raising concerns about the housing market. Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors (NAR), appears on Wealth! to discuss how mortgage rates are impacting the outlook for the U.S. housing market.
Lautz said rising interest rates are “really difficult” and “disheartening” for prospective homebuyers. She stressed that affordable housing inventory remains hard to find, and that new home construction is crucial to increasing supply. Many existing homeowners are hesitant to sell because of low fixed interest rates, further compounding the inventory shortage.
“Certainly, any reduction in mortgage rates would be encouraging for homebuyers,” Lautz told Yahoo Finance, but he warned that home prices will continue to rise.
“In fact, lower mortgage rates could lead to even more bidding wars in today's housing market, where home inventory is very limited,” she added. This interplay between interest rates and inventory is “just one part of the equation that might discourage some people from jumping in right now.”
For more expert insights and the latest market trends, click here to watch this full episode of Wealth.
This post was written by Angel Smith
Video Transcript
With homebuying just got a little more expensive and mortgage rates increasing this week for the first time since May, we're joined by Jessica Lutz, deputy chief economist and vice president of research for the National Association of Realtors, to explain what you need to know if you're looking to buy a new home.
Thank you for appearing on our show.
got it.
So what's happening in the housing market?
In particular, we know that many consumers are hearing news about home prices reaching all-time highs and are trying to figure out where the optimal buying point is.
Yeah.
So it's very difficult for consumers today and it's actually very discouraging. We know that as we go into the summer, interest rates are actually trending upward again, but we don't know whether that will be sustained or whether interest rates will remain in this range for a significant period of time.
And I think when we think about homebuyers today who are looking for an affordable range, they're having a very hard time finding housing inventory that's very scarce at very expensive price points.
More buyers are entering the market because they can afford it.
The story continues
Yeah, and we also know that people have a lot of home equity, so they can certainly make these expensive transactions.
And when you think about how that impacts the calculation of whether to buy a new home or an existing home, where do you think that trade-off occurs among potential buyers?
So when we think about the new home market, we see that historically it has been smaller than it is today.
That being said, we know that right now we need a lot more housing construction than we have today.
Looking at data from the past few months, housing starts have actually remained fairly steady.
So, this is not encouraging given that we need more housing starts in the market for new housing inventory.
When you think about existing homes, a lot of people are locked into those low interest rates if they borrowed or refinanced their mortgage at 3.5% instead of around 7%.
We’re talking about significant changes to mortgage payments today, and they may not want or be able to afford a change of over $700 a month.
Really?
Do you think home affordability will improve as the Federal Reserve begins to cut interest rates, which are expected later this year?
Well, that's all part of the equation.
Definitely mortgage interest rates.
Any drop would be encouraging news for home buyers.
But we also know that home prices continue to rise.
In fact, lower mortgage rates could lead to even more bidding wars in today's housing market, where home inventory is very limited.
And that's just one part of the equation, and maybe some people just aren't willing to jump in right now.
If you look at today’s housing market, you’ll see that 30% of homes are selling for above asking price, even with rising interest rates.
So if interest rates are reduced, which also impacts mortgage rates, you may see more bidders and a bidding war could put an even bigger premium on prices.
That is, at what point will you finally know that your property has sold well enough?
And some might say, if you can afford it or it's possible, just build a new house.
At what point do you think we'll see some of this activity calm down and get back to more normal?
I think housing construction activity will be necessary for several years.
This is pretty powerful in bringing some kind of balance to the market. The big problem right now is the huge wave of young people entering the housing market looking for their first property.
This comes at the same time that the baby boomer generation is reaching retirement age and actively starting to search for their dream home after retirement.
The housing market is currently under great pressure with limited inventory, while at the same time current homeowners are unwilling or unable to relocate.
Well, I want to end this conversation with some practical tips for those of you who are excited.
They're fired up and are planning on going out for an open house this weekend.
What do they need to keep in mind, Jessica?
Well, stay in close contact with experts.
As well as making sure you have a real estate agent on your side, it’s also important to stay in close contact with a mortgage broker to ensure you can buy the home you’re looking for.
Now we'll turn to Jessica Laut, deputy chief economist and vice president of research at the National Association of Realtors.
Jessica, thank you so much for being on the show today.
thank you.