Mortgage interest rates are now at 5%, a rate not seen since 2011, and the rates are increasing at the fastest pace in 35 years. This could potentially take the red-hot, pandemic housing market back down to earth, The Wall Street Journal reports.
A 5% interest rate on a $300,000 loan, for instance, excluding taxes and homeowners insurance, is running at about $1,610 a month, up from $1,271 a year ago when interest rates were 3.04%, according to Lending Tree data.
"We’ve never seen a time where mortgage rates have risen as quickly as they have and the market hasn’t cooled off," Ralph McLaughlin, chief economist at real estate data research firm Kukun, tells the WSJ. "I don’t expect the market to collapse, by any means, but certainly it’s going to go from a gangbuster market to one that hopefully looks more normal."
As much as some potential home buyers would like to purchase a home, especially in the spring market when homes typically are grabbed up, potential buyers are giving pause. It isn't just increasing mortgage rates that are keeping them at bay. Potential buyers are also considering energy costs and how inflation is raising the price of groceries and gas.
A Fannie Mae survey in March found that fewer than a quarter of consumers say that now is a good time to buy a home, down from 53% in May 2021. This is the lowest reading since 2010, when Fannie Mae began this survey.
Home sales typically begin to sag in coastal cities, like Los Angeles, Seattle and Boston, Redfin Corp. says.
Real estate agents are still bullish on the market, however, noting that many buyers are still rushing to the market with cash and that there can be as many as eight bids on a single home. Realtors also point out that some homebuyers are jumping in before mortgages and rising inflation boost home ownership costs any higher.
As Nick Painz, managing broker at Re/Max Alliance in Denver suburb Westminster, Colorado, puts it: "The people that think it's got to stop somewhere — I think they're in for a rude awakening."
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