Two economists expressed concerns about the real estate industry in the wake of the Federal Reserve’s decision this week to raise interest rates by three-quarters of a percent.
The 30-year fixed mortgage rate climbed to 6.29% from 6.02% the previous week, according to Freddie Mac. At that rate, the monthly mortgage payment on a $400,000 loan would be about $2,470, compared to $1,660 a year ago when rates were closer to 3%, according to the National Association of Realtors®.
“Rising mortgage rates typically lead to lower mobility rates over time,” said Nadia Evangelou, senior economist and director of forecasting for NAR. “Owners may be locked into their existing homes as mortgage rates rise, and the 3% rates from last year may not be back anytime soon.”
Lower mobility rates can shrink housing inventory, which remains low, Evangelou said.
“While the nation is suffering from a severe housing shortage, lower mobility can make housing inventory even tighter and cause home prices to continue to escalate,” she said. “However, homeowners should consider that they have already accumulated substantial equity in the last couple of years. The median-priced home is worth about $80,000 more than in 2020 and $200,000 more than in 2012. In the meantime, homes will continue to appreciate as prices are not expected to drop due to the low housing supply.”
Ruben Gonzalez, chief economist at Keller Williams, expects rates may continue to rise and a slower rate of home sales will continue into 2023.
“Rising mortgage rates have continued to slow housing market demand, resulting in slowing sales and slower home price appreciation,” he said. “We expect existing home sales to finish the year down nearly 20 percent and for the slower pace of home sales to persist into the beginning of 2023.”