Are High Mortgage Rates Discouraging Buyers?
- Author: Jessica Williams
- Posted: 2024-10-01
The uptick in mortgage rates is putting a damper on the housing market, but it's not likely to last long, according to Wharton real estate professor Benjamin Keys. Home prices have been rising faster than rents for a decade, and many Americans will likely be pushing for home ownership in the coming years. The advantage of a fixed mortgage is that a buyer can lock in the interest rate for 15 to 30 years.
While the market is not suffering because of higher mortgage rates, many buyers are still deciding against buying a home. Earlier this year, Kyle Tomak looked for a house for his in-laws in the Denver suburbs. But he missed out on the home he wanted because the price tag was so high. Investors had already bid over $100,000, so he didn't even have the cash to buy it. Mortgage rates made the home out of Kyle Tomak's price range out of reach.
After the COVID-19 pandemic, mortgage rates started to rise, with the 30-year fixed rate at an all-time high last week. Most experts expect mortgage rates to rise again this year, and predict they will hit five percent by the end of the year. Despite this, mortgage rates remain below the historic average of eight percent. However, some buyers are finding a silver lining. If the rates rise, many potential buyers may opt out of the market.
According to the National Association of Realtors, mortgage rates have pushed many buyers out of the market. As a result, housing inventories fell by 12% month-over-month in April and by 18% in March. Mortgage rates have spooked buyers who had locked in lower rates. And this is especially true in markets where home prices are near or close to the national median. A rising mortgage rate also makes home ownership even more expensive.
During the last two years, the Federal Reserve has kept the mortgage rates low. The average rate was below three percent by the summer of 2020. This low rate encouraged many buyers to enter the market and eased the burden on homebuyers. The rising mortgage rates, however, are likely to increase buyers' borrowing costs. As a result, they could potentially dampen the housing market even further. The move towards higher mortgage rates amounts to an economic shock.
The Fed's policy to combat the economic crisis has kept mortgage rates low for more than a decade. The Fed has tightened monetary policy since then, so it's likely that mortgage rates will continue to rise. It's not entirely clear how this will affect home prices. However, one thing is certain: mortgage rates are a reflection of the economic situation in the country. Rising inflation will push mortgage rates higher.
