The U.S. real estate market was already tough for potential buyers, who have faced double-digit price increases and brutal competition for listed properties. They now face another challenge, as rising mortgage rates add to the restriction on accessibility.
The average mortgage rate rose to 4.42% during the week ending March 24, according to Freddie Mac. This is a jump of more than one percentage point since January 2022, when rates were around 3.2%. The current rate is the highest that home buyers have seen since March 2019.
The higher rate translates into significant costs for home buyers. For a mid-priced home, a 4.4% rate on a 30-year fixed mortgage would cost someone an additional $ 250 a month, compared to a buyer who had bought in January when the rate was about $ 3. 2%, according to Nadia Evangelou, senior economist and forecast director of the National Association of Realtors.
He added that this jump in housing costs is leaving millions of potential buyers out of the market. “Since the beginning of the year, some 7.9 million households have already received the price due to higher mortgage rates,” he said in an email to CBS MoneyWatch, adding that “2.5 million “These homes are millennials.”
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The rapid rise in house prices during the pandemic has pushed the dream of owning a home beyond the possibilities of many middle-class Americans, who are increasingly bidding against higher-income investors and buyers for a limited set of homes. One question many have asked is when prices could return to land; so far, however, there is no indication that prices will soften.
In February, the average home price of U.S. homes rose nearly 13 percent to $ 392,000 from a year earlier, Realtor.com said earlier this month. Only 40% of tenants who are millennials (whose generation is now the largest home buyer) can afford to buy a home with current rates, compared to 53% a year earlier, Evangelou said.
The housing market is cooling fast
Still, there are some emerging cracks in the real estate market. On the one hand, the outstanding home sales index, which tracks contracts signed for existing home sales, fell 4.1% in February, which experts say is due to problems of affordability and lack of inventory. According to Realtor.com, the number of active listings fell by almost 25% in February compared to a year earlier.
“Outstanding home sales continue to see demand for mortgages, which has been falling rapidly since the beginning of the year, and is not close to the bottom, given the continuing rise in mortgage rates,” said economist Ian Shepherdson. in chief of Pantheon Macroeconomics, in a research note. “The housing market is cooling very fast and sales will fall by 20% to 30% by mid-year.”
He added: “The writing is on the wall, in large, crisp, clear letters.”
For buyers looking for a home, the highest price came at the same time as speeding # inflation not only did he get more out of every salary, but he also increased his mortgage rates. The net effect, especially for first-time buyers, was a reduction in their budgets and fewer options.
– George Ratiu (@GeorgeRatiu) March 25, 2022
Buyers are also facing a threefold blow: not only are housing costs and loans higher now, but inflation is at its highest level in four decades. The typical home is likely to face one An additional $ 2,000 in costs this year due to high gas prices: money that will erode its ability to spend on other goods and services.
“For buyers looking for a home, the highest price came at the same time as speeding # inflation not only did he get more out of every salary, but he also raised mortgage rates, “said George Ratiu, a senior economist at Realtor.com on Twitter.” The net effect, especially for first-time buyers, was a reduction in their budgets and less. options “.
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