Section Branding
Header Content
Mortgage rates are at a record high. Here's what that means for home buying
Primary Content
Rates for a fixed, 30-year mortgage jumped to the highest rate seen in over 20 years - over seven percent. We'll look at what this means for prospective homebuyers, and the housing market in general.
Transcript
SCOTT SIMON, HOST:
Anybody scanning the real estate ads or heading out to an open house this weekend might be in for a rude awakening. This week, mortgage rates climbed to their highest level in more than two decades, and that is pricing some potential buyers out of the market and forcing others to rethink what kind of house they can afford. NPR's Scott Horsley joins us. Scott, thanks so much for being with us.
SCOTT HORSLEY, BYLINE: Good morning, Scott.
SIMON: How much have mortgage rates gone up?
HORSLEY: The mortgage giant Freddie Mac says the average rate on a 30-year fixed home loan this week is just over 7%. That's the highest it's been since 2002. A year ago, the average rate was just over 5%. And two years ago it was less than 3%. What this means for a home buyer is the same monthly payment that would have bought a $400,000 house last summer will only stretch to a $325,000 house today. So that's a big adjustment for a lot of would-be buyers to wrap their heads around. Just ask realtor Leigh Brown, who works with a lot of first-time buyers around Charlotte, N.C.
LEIGH BROWN: The first thing they have to get over is the sense of regret for not having purchased while interest rates were low. There's a lot of people who - man, I just should have done it a couple of years ago. And so that regret can get in the way of making good decisions. And so I have to remind buyers that what feels expensive today is probably going to feel like a bargain 10 years from now.
HORSLEY: That's assuming home prices continue to climb. Brown tries to reassure clients to just keep looking at a lower price point. Maybe that will mean settling for less house, more of a fixer-upper. It's also an opportunity, she says, to get more creative on the financing side.
SIMON: What is creative financing? I mean, how does that work?
HORSLEY: Well, maybe it means putting less money down and using some of the money you'd save for a down payment to instead buy a lower interest rate. Depending on how long you plan to stay in a house, that might make financial sense. Also, if you're buying from someone who has a VA loan, you can assume that loan even if you weren't in the military, and that would probably carry a lower interest rate.
SIMON: Scott, what's pushed up mortgage rates so much?
HORSLEY: Mortgage rates tend to rise and fall with the yield on 10-year treasuries, and that yield was up this week. This is indirectly tied to the Federal Reserve's efforts to curb inflation. The bond market now thinks to do that, the Fed's going to have to leave its own interest rates higher for longer. So bondholders are demanding a higher return, and that's feeding over into mortgage rates.
SIMON: And can you forecast what the overall effect of this might be on the housing market?
HORSLEY: Yeah, this is going to weigh on the market. Home sales are already down. Sales in June were down almost 19% from a year ago. Not only are a lot of buyers sitting on the sidelines, but so are a lot of sellers. Steve Jolly, who's a realtor in Nashville, says anybody who bought or refinanced their home in the last few years probably has a really low interest rate that they don't want to give up.
STEVE JOLLY: These low interest rates are almost like golden handcuffs. People don't want to get rid of that because if they want to buy up and buy a nicer home, what they're going to have to pay is going to be thousands of more dollars per month in mortgage.
HORSLEY: So the housing market is definitely less frenzied now than it was a couple of years ago. Now, that's not all bad. Buyers and sellers have a bit more time now to catch their breath, maybe get an inspection, negotiate a little bit more. Fewer home sales does have ripple effects elsewhere in the economy, though. It usually means people are buying less furniture, for example, and fewer appliances as well.
SIMON: And what are the implications for people who had intended at least to build new houses?
HORSLEY: The homebuilders are busy right now. More people are looking at newly built houses because there are so few existing homes on the market. There are also more than a million apartments under construction right now, which is the most we've seen in decades. And as those come online, that should put downward pressure on rents, which is at least a little good news for people who are priced out of the housing market.
SIMON: NPR's Scott Horsley, thanks so much.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.