Prospective homebuyers are unlikely to see any relief from surging mortgage rates in the near future, a prominent expert on the US housing market warned on Wednesday.
The average 30-year mortgage rate has more than doubled this year, recently topping 7% for the first time in two decades. Nevertheless, mortgages are likely to move even higher in the months ahead after Federal Reserve Chair Jerome Powell indicated the central bank isn’t done raising interest rates.
The mortgage market “has already priced in in the latest Fed move” to hike its benchmark rate by 0.75% for the fourth straight month, according to Lawrence Yun, chief economist for the National Association of Realtors. However, lingering inflation means exploding mortgage rates will remain prohibitively high.
“Still, mortgage rates are at near 20-year highs, and that hurts homebuyers,” Yun said in a statement. “Once inflation is contained, mortgage rates will start to drift lower. It may be another year or two before that happens.”
Higher mortgage rates are a key drag on the US housing market because they further hamper affordability for buyers. As The Post reported, monthly mortgage payments are currently over 50% more expensive than they were one year ago – forcing many sellers to slash their asking prices to keep buyers interested.
While the Fed’s benchmark interest rate does not directly impact mortgages, rates tend to move higher as central bank policymakers tighten monetary policy.
“Activity in the housing sector has weakened significantly, largely reflecting higher mortgage rates,” the Fed’s Powell said during his press conference on Wednesday.
Powell later expanded on the Fed’s view, acknowledging that mortgage rates were driving prices lower in many areas.
“The housing market was very overheated for the couple of years after the pandemic as demand increased and rates were low,” Powel said. “We all know the stories of how overheated the housing market was—prices going up, many, many bidders, no conditions, that kind of thing.”
“So the housing market needs to get back into a balance between supply and demand,” he added.
Experts say the Fed’s rate hikes have effectively triggered a US housing recession – though improved lending practices are expected to prevent a collapse on par with what occurred when subprime mortgages imploded during the Great Recession.
Last month, real estate firm Redfin warned the housing market was “going to get worse,” with increases to mortgage rates likely to continue until mid-2023.
[Written in collaboration with other media outlets with information from the following sources]
