Stephen Senne / AP
Here’s a not-so-interesting fact: the monthly mortgage payment required to buy a regular home in the U.S. has now grown by a staggering 55% over the beginning of last year. This is due to the sharp rise in mortgage rates in recent weeks amid rising prices in the hot housing market.
“It’s pretty crazy,” said Nick Cachatore, who wants to buy a home in Tampa, Florida. “It’s very demoralizing.”
At the time Cacciatore was looking for last summer, mortgage rates were below 3%. This week they rose to more than 5%. While this may not seem like much, it is very important if you are buying something as expensive as a home. And Cacciatore was looking for homes in the $ 600,000 price range.
“It added about $ 700 a month in monthly payments,” he says. “I mean, a ridiculous amount just from interest rates.”
Cacciatore is a lawyer who starts a family practice. His fiancé is a veterinarian. So they have a good job and some savings.
But in this overheated housing market, they all won. Now with higher mortgage rates they are looking for smaller, less expensive apartments.
Some first buyers completely refuse.
“It pretty much took them out of the market,” says Gabriela Raimander, a real estate agent in St. Petersburg, Florida. She says the other day she was talking to a client. “She told me with teary eyes,” Raimander says, “I just can’t compete in this market. My dream of owning a house will have to be postponed or postponed altogether. ” “
Here are the numbers of a typical home in the US: the average cost of a home rose from $ 309,200 in December 2020 to $ 357,300.
Over the same period, interest rates rose from 2.67% to 5.08% this week. From the 10% down payment, which pushed the monthly payment from $ 1,124 to $ 1,742 – a colossal increase of 55%, with most of it accounted for by raising mortgage rates.
Searches on the Internet “lady for sale” are declining
Price shock is already affecting home buyers.
According to Daryl Fairweather, chief economist of real estate brokerage firm Redfin, the number of online searches for homes for sale has already fallen by 10% compared to last year. The number of people going to watch the houses is also declining slightly.
“So we see some very early signs that buyers are responding to these higher mortgage rates,” Fairweather says.
Higher mortgage rates could finally cool the hot housing market
This may not be a bad thing. Finally, an overheated housing market could cool off, ending a frantic war of buying and bidding.
Slowing demand could help homeowners make up for lost time. The record low supply of houses is the reason why prices have risen so much during the COVID-19 pandemic.
“I think the rise in housing prices will cool down a lot,” says Fairweather. “We will have a year of fairly steady growth in house prices in real terms.”
This is, of course, exactly what the Federal Reserve is trying to do for the wider economy by raising interest rates. The Fed wants to cool rising prices and inflation by making borrowing money more expensive.
However, it is unclear how much mortgage rates will rise. Unlike rates on credit cards or other types of loans, mortgage rates move early and sharply in anticipation of what the market expects, such as the Federal Reserve, which will do with rates and bond purchases over the next year. So mortgages may increase around this point, or they may continue to grow.
In the Seattle area Alex Bacon is not waiting to find out.
“We are very excited to move,” she says. Bacon and her husband are preparing to sell their very small initial home, which they bought about five years ago. That was all they could afford, and it was right below the flight path of Seattle Airport.
“I’m near the end of one of the runways, so the air just smells like jet fuel,” she says. “I can’t invite people to barbecues because every time you talk, you have to stop for 30 seconds in the middle of your mind,” she says, because the 747 roars over her backyard.
After the pandemic, Bacon realized he could work remotely. She is a project manager at a medical technology company. So the couple’s plan was to eventually move two hours north to a smaller, more accessible city and buy a bigger house that is not near the airport.
But as rates rise, they are in a hurry. They pack the boxes and move in as soon as they can buy this house.
“We’re starting to see rates around 5%, and I’m just afraid that if they get too high, we won’t be able to afford the house we want up there,” she says.
Their current home has increased significantly in price over the past few years, even with airplanes.
This would be the case for those who already have a home. They are in a much better situation than home buyers for the first time, because if they sell their home, they will most likely have a good bunch of money to pay for the down payment at the new location.