Chief Economist For National Association Of Realtors Predicts Uncertainty For Housing Market | Ezine Daddy

Two years after the devastating financial impact of Covid-19, the US economy has made an impressive comeback, thanks in large part to a booming housing market. But as Lawrence Yun, chief economist for the National Association of Realtors, explains, there are significant questions about the direction of the sector in the coming months.

“Housing construction kept the economy afloat as home prices rose and buyer demand increased,” Yun said. “However, this year has already thrown up some curveballs, including record-low inventories and unrelenting inflation.”

While the housing supply appears to be on the upswing as builders ramp up new homes, Yun expects inflation to linger and in turn weigh on potential buyers. In addition, other external economic factors will negatively impact the market both indirectly and directly.

From soaring food prices to record gas costs, Yun said the war between Russia and Ukraine has helped make housing further unaffordable for buyers. He said a more immediate impact on home seekers has been the rapid rise in mortgage rates, along with other anti-inflationary measures by the Federal Reserve.

“Compared to a few months ago, mortgages are now costing more money for homebuyers,” he said. “For a home at the average price, the difference in price is $300 to $400 more per month, which is a heavy toll on a working family.”

NAR calculates that buying a home is now 55% more expensive than it was a year ago. Rising mortgage rates and prices are hurting affordability, and while wages are improving, Yun says they are being “wiped away” due to inflation.

“Wages are up 6% year-on-year, and that’s good news,” Yun said. “But inflation is at 8.5%.” He estimates that inflation will remain high in the coming months and that the market will see further monetary tightening through a series of rate hikes.

Citing a five-month decline in pending home sales as well as a drop in new-build single-family home sales, Yun predicts that higher mortgage rates will slow the housing market.

“The record-low interest rates of 2021 are over, and rates above 5% are becoming the norm,” said Jacob Channel, senior economic analyst at LendingTree. “While a lower interest rate can make paying off a mortgage more affordable, it can be difficult to imagine just how much a higher interest rate can impact payments for new buyers.”

With that in mind, the online lending marketplace used data from LendingTree users to provide a dollar amount for how rising interest rates can affect the cost of a mortgage.

“Specifically, we calculated the difference between the average monthly mortgage payments for 30-year fixed-rate loans in each state based on the January and April 2022 average annual percentage rates,” Channel said. “We found that rising APRs could potentially cost new borrowers in the US hundreds of dollars a month — or more than $100,000 over the life of the loans.”

  • The annual rate on 30-year fixed-rate mortgages has risen an average of 1.46 percentage points in all 50 states since January. In January, the average annual percentage rate across the 50 states was 3.79%. In April it was 5.25%.
  • Nationwide, rising APRs are causing new mortgage payments to increase by an average of $258.57 per month. To put that number in perspective, that monthly increase works out to an average of $3,102.82 in incremental charges per year and an average of $93,084.60 in incremental charges over the life of a 30-year loan.
  • Mortgage payments increased the least in Ohio, West Virginia and Kentucky. Due to relatively low loan amounts, monthly payments increased by $199.55, $200.81, and $202.28, respectively. Although these increases are below the national average, they add up to an average of $72,316.72 in additional charges over the 30-year term of a mortgage.
  • California, Washington and Massachusetts are the states where mortgage payments have increased the most. These high-cost states posted monthly gains of $406.78, $357.38, and $337.23, respectively. Over 30 years, these additional monthly costs add up to an average of $132,167.83.

Channel said that while rising interest rates won’t hurt most borrowers who currently have a fixed-rate mortgage and aren’t planning to sell, it could affect those who haven’t bought a home yet. For example, if APRs increased by another 50 basis points by the end of the year, monthly mortgage payments across the country would increase by an average of $93.99, even if loan amounts remained the same. Those extra costs could make it even harder for some prospective home buyers to navigate what is likely to be an expensive housing market.

“Of course, there’s no guarantee rates will get that high by 2023,” Channel said. “And even if they did, it wouldn’t necessarily be all bad news. Finally, higher rates should translate into lower demand from homebuyers, which could ultimately mean those who do decide to buy are less likely to have to contend with hassles like impossibly tough house price negotiations and an extremely limited home inventory. ”

“Regardless of what the future holds, it’s clear that rising interest rates have already made buying a home more expensive,” he noted. “Fortunately, that doesn’t mean buying a home is an impossible endeavor, and with proper planning, buying a home could still be a great option for many people.

Tips for a lower mortgage rate

Although interest rates are rising rapidly, there are still some opportunities for borrowers to potentially get a lower APR on their mortgage.

  • Before you buy, look for a mortgage. Because different lenders often offer different interest rates to the same borrowers, homebuyers may be able to secure a lower interest rate by looking for a mortgage before buying a home. In some cases, a borrower may be able to get an interest rate that is dozens of basis points lower than what the first lender offered them. This lower interest rate could translate into tens of thousands of dollars in savings over the life of a loan.
  • Work on your credit. Because it’s used to gauge how likely it is that a person will be able to pay off their debt, a credit score is an important factor that lenders consider when determining what interest rate to offer a potential home buyer. For this reason, borrowers should work to improve their credit score before applying for a mortgage. A higher score can not only help a homebuyer get a lower interest rate, but it can also help them get a loan in the first place.
  • Consider a shorter-term mortgage. Short-term loans often have lower interest rates than their long-term counterparts. For example, borrowers with excellent credit ratings can typically expect to receive an interest rate on a 15-year fixed-rate mortgage that is more than 50 basis points lower than the rate they can expect on a 30-year fixed-rate mortgage. Although a shorter loan term typically results in higher monthly payments, it still results in lower interest payments over the life of a loan. This can be worthwhile for those who have extra money and don’t mind a higher housing benefit payment.

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