Mortgage rates just rose above 6% for the first time since 2008. 3 real-estate experts — including one predicting price declines as early as this summer — break down what's next for the housing market. (2024)
In the first six months of the year, they're up about 100%, according to Mortgage News Daily data from June 14 showing 30-year rates at 6.23%. Data from Freddie Mac released Thursday shows rates now at 5.78%, and June 1 data from the Mortgage Bankers Association, meanwhile, still has rates at 5.33%.
The last time the latter two organizations reported mortgage rates above 6% was November 2008. Mortgage News Daily's dataset begins in 2009.
Mortgage News Daily
The surge is being driven by a Federal Reserve hellbent on cooling 41-year-high inflation now at 8.6%. To do this, they're hiking overnight lending rates for banks — which impact rates for mortgages, auto loan rates, credit card debt, and more — by the fastest pace in decades. On Wednesday, they hiked the federal funds rate by 75 basis points, the most since 1994.
What does this mean for the future of the housing market in the near-term, which has been red hot since spring 2020?
In May, Insider asked 32 experts what what they see ahead for the housing market, and most said they don't see price declines. But the market has shifted in a month's time. Amid the sustained surge in mortgage rates and unrelenting inflation, here's what three market experts said this week about the market's near-term prospects.
Bill Adams, chief economist of Comerica Bank
Adams told Insider on Wednesday that he expects higher interest rates to continue to weigh on demand and price growth.
"I think the fever is broken for housing in the United States. The Fed rate hikes and beginning of shrinking of the balance sheet have pushed up interest rates a lot, and we're starting to see that flow through to weaker expectations of homebuilders and less foot traffic and listings, and a slowdown in mortgage applications and home sales."
Still, Adams said he doesn't see home prices dropping.
"I don't forecast an outright decline in prices," he said. "And that's because fundamental demand for housing is considerably stronger than it was prior to the pandemic because of the rise of work from home and changing lifestyles. And I think that's a change that's going to persist whether rates go up or down."
Ian Shepherdson, chief economist of Pantheon Macroeconomics
Shepherdson, meanwhile, is more bearish on the housing market in the near-term as mortgage rates rise.
In a note to clients on Wednesday, he reiterated recent calls he's made for home price declines as early as this summer.
"The 26% plunge in mortgage applications from their December peak — with no sign yet of a floor — already has pushed new home sales down to just 591,000 in April from a peak of 839,000 in December, driving up inventory to 9.0 months. That's high enough to signal that prices likely will fall over the summer, and new construction activity will drop sharply," Shepherdson said.
He added: "This is still the early stages of the housing rollover; homebuilders are not yet ready to admit that the sky is falling in. But it is."
Shepherdson, who warned in 2005 of the mid-2000s housing bubble that later burst, said in May that he expects a decline to be brief.
Alex Hermann, senior researcher at Harvard's Joint Center for Housing Studies
Hermann told Insider on Thursday that he expects home price growth to moderate, but not decline, as a result of softening demand from rising mortgage rates.
But demand hasn't fallen enough and housing supply is still too low to cause prices to drop, he said.
"Given where supply and demand fundamentals are right now, we're still incredibly constrained. Inventory is still near record and historic lows. And you'd expect home price appreciation to continue, certainly not turn negative —the caveat around that is with aggressive rate hikes you could find yourself in a broader economic downturn."
He also said that while rising mortgage rates hurt demand, they act as a further constraint on the the supply side, helping to keep prices up. This is because people will be more likely to hold onto their homes if the next home they purchase will come with a costlier mortgage.
"You're going to be reluctant to sell to take on a new mortgage when interest rates are one or even two percentage points higher," Hermann said.
For example, the 2008 recession saw a 30-year mortgage peak of 6.63%. The current 30-year rate, as of this writing, is at 5.30% but we'll see how recession fears impact this.
(RTTNews) - Mortgage rates, or interest rates on home loans, dropped after it increased for four consecutive weeks, according to mortgage provider Freddie Mac (FMCC. OB). The 30-year FRM averaged 6.88 percent as of March 7, 2024, down from last week when it averaged 6.94 percent.
If there is a downturn in the economy, mortgage interest rates will very certainly fall to about 4 percent or even lower. If it does, it could be a good time to hold off and save some money, especially for first-time homeowners.
NAR forecasts that sales will rise by 13 percent in 2024. “Housing sales are expected to increase a bit from this year,” agrees Chen Zhao, who leads the economics team at Redfin. “However,” she qualifies, “we are not expecting sales to increase dramatically, as rates are likely to remain above 6 percent.”
The interest rate hikes increased the monthly payments on subprime loans, and many homeowners were unable to afford their payments. They were also unable to refinance or sell their homes due to the real estate market slowing down. The only option was for homeowners to default on their loans.
As the financial crisis and the economic contraction intensified in the fall of 2008, the FOMC accelerated its interest rate cuts, taking the rate to its effective floor – a target range of 0 to 25 basis points – by the end of the year.
Mortgage rates are expected to decline later this year as the U.S. economy weakens, inflation slows and the Federal Reserve cuts interest rates. The 30-year fixed mortgage rate is expected to fall to the mid- to low-6% range through the end of 2024, potentially dipping into high-5% territory by early 2025.
Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC that he doesn't think mortgage rates will reach the 3% range again in his lifetime.
However, the overall outlook for mortgage rates in 2024 suggests more rate drops, with Bright MLS forecasts predicting rates to hit 6.2% by the fourth quarter.”
What happens to house prices in a recession? While the cost of financing a home increases when interest rates are on the rise, home prices themselves may actually decline. “Usually, during a recession or periods of higher interest rates, demand slows and values of homes come down,” says Miller.
A market crash would likely push prices down and make housing cheaper, but it would remain unaffordable for many if the crash was caused by a larger recession.
Mortgage rates are high, but home prices keep rising -- blame the lack of housing supply. Economists predict that any market correction will be modest and not on the scale of the Great Recession. Experts do not expect a housing market crash, due to low inventory, strict lending standards and other factors.
Experts like Fannie Mae and the Mortgage Bankers Association predict that mortgage rates will decrease in 2024 and continue to drop in 2025 but this likely won't be until the latter half of the year.
April, June, and July are the best months to sell your house in California. The median sale price of houses in June 2023, was $796,400, which is expected to grow more in 2024. However, cities like Arcadia and San Mateo follow an upward trend throughout the year.
However, increases should slow between 2024 and 2026, and rates may even decline in 2027. Among the factors that could impact mortgage rates in the next 5 years are inflation, Federal Reserve policy, and economic growth. Homebuyers should consider locking in a low mortgage rate now, as rates are expected to rise soon.”
In late 2008, the Fed slashed rates to zero in an unprecedented attempt to help the U.S. economy cope with the fallout from the 2008 global financial crisis. Seven years later, the central bank began gingerly raising rates as the economy recovered gradually.
Obtaining a mortgage post-2008 has more requirements
Consumers today are required to have minimum credit scores, provide their employment history, and have acceptable debt-to-income ratios to qualify for most home loans.
The Federal Reserve was also forced to take unprecedented monetary policy measures during the Great Recession to preserve the financial system. From September 2007 to December 2008, the Fed implemented 10 interest rate cuts, bringing the fed funds rate down from 5.25% to essentially zero.
In fact, Bloomberg reported that the 30-year fixed mortgage rate had sustained its biggest drop in a five-week period since late 2008, diving 69 basis points in that span.
Introduction: My name is Wyatt Volkman LLD, I am a handsome, rich, comfortable, lively, zealous, graceful, gifted person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
