If you are a baby boomer, today’s Mortgage interest rate High. After all, they were much higher in the 1980s and 1990s. But if you’re a young person and you’ve been experiencing historically low mortgage rates throughout the pandemic and the years before, you probably feel differently. Well, a new normal is beginning, and depending on who you are, it can sound good or terrible.
“I think the new benchmark rate or mortgage rate will be around 6 percent,” said Lawrence Yun, chief economist for the National Association of Realtors. interview With CNBC yesterday. “The Fed has made it clear that they are going to cut rates. Even if there is a delay, if they don’t do it this year, they will do it next year. But mortgage rates are not going to go down to 3%, 4%, or even 5%… So consumers should expect 6% to be normal.”
About two years ago, when inflation hit a 40-year high, the Federal Reserve raised interest rates several times to try to curb it. Inflation has eased, but it has proven to be much higher than some had expected. Either way, as rates have risen, mortgage rates have soared. At the end of December 2020, the average 30-year fixed mortgage rate was in the 2% range, well above the 2% range. In October of last year, it was just above 8%. Today, Daily Mortgage Rates It’s punching in at 6.99%. “The average long-term mortgage rate is around 7%,” Yoon said. “That’s where it is today, but it’s certainly higher than what it was over the last 10 years, when it was averaging 4% and 5%.”
But a 6% mortgage rate might not be so bad. Compass CEO Robert Rifkin recently said the magic mortgage rate is below 6%, which could be a factor that brings back buyers and sellers. What’s worse is home prices. By most estimates, home prices have also risen significantly since the pandemic, by more than 40%. The same can’t be said for incomes. So overall, purchasing power is falling, and in Yoon’s view, the Fed should cut rates primarily to support supply.
“What we are seeing is that apartment construction activity is actually starting to slow down due to higher financing costs,” Yoon said. “If there is a shortage of supply, it could accelerate inflation going forward. So we need more construction and supply in the housing sector to help bring inflation down.”
He added: “Today’s high construction financing costs are limiting some developers, which could actually lead to a housing shortage and fuel inflation in the future.”
To be clear, there is already a housing shortage. Millions of homes are missing. And according to an analysis released yesterday by Redfin, apartment building permits have plummeted by nearly 30% since the pandemic began. To some extent, the supply crisis has been exacerbated by the lockdown effect, especially since existing home sales last year fell to their lowest level in nearly 30 years, leaving few people to sell their homes. (Existing home sale It’s still not going well — it was down both on a monthly and yearly basis in May.) But inventory has improved this year. For example, on a typical day in June, there were nearly 37% more homes actively for sale than a year ago, according to Realtor.com. Monthly Trend Reportthat is a good news.
“If inventory is high, then home prices won’t go up any further,” Yoon said. “There will be some growth, but it won’t be strong growth, and we need to stabilize home prices more.” And there are already signs that “year-over-year growth is starting to peak,” according to a recent Redfin analysis, referring to home prices in May. Case-Shiller data from April also showed price inflation moving at a slower pace.
