8% Mortgage Rates

September 21, 2023

Economist Warns of Possible 8% Mortgage Rates as Home Sales Slump.

The U.S. housing market faces intensifying headwinds as sales of previously owned homes declined 0.7% in August, falling short of economists' predictions, according to the National Association of Realtors (NAR).
The annualized sales rate of 4.04 million homes was a far cry from the anticipated 0.7% increase and 4.10 million rate. Sales are down 15.3% compared to last year and mark the third slowest pace of the current housing cycle.
NAR's chief economist, Lawrence Yun, emphasized the impact of rising mortgage rates, warning that they could spike to 8% in the short term.
Realtor.com’s Danielle Hale noted that the rates for August's home sales were locked in during June and July, when rates were just below 7%.
With rates consistently above 7% for the past five weeks, and the Federal Reserve considering another rate hike, the affordability crisis shows no sign of abating.
Yun also pointed out that while job gains could positively influence the market in the long run, the immediate effect of rising mortgage rates is putting a damper on both buying and selling activity.
The high rates are not just affecting potential buyers but are also making current homeowners reluctant to sell, exacerbating the issues in the housing market.

DC Housing Market Faces ‘Dysfunctional’ Period Amid Tight Inventory and High Prices.

The housing market in the Washington, D.C. area is grappling with dwindling inventory and soaring prices, according to recent data from the National Association of Realtors (NAR) and Bright MLS.
Nationwide, housing supply sits at 3.1 months, a historic low for this time of year. In the D.C. area, listings have plunged nearly 30% from a year ago, leaving a scant 1.33-month supply.
High interest rates are deterring both buyers and sellers. NAR's Deputy Chief Economist Jessica Lautz reported that one in three sellers is fetching more than the asking price.
Meanwhile, median prices in the region are climbing; Fairfax City, Va., for example, saw a year-over-year spike of 9.1% to $730,000 as of July.
For first-time buyers without the ability to pay cash, the situation is especially bleak, facing 7% interest rates and minimal inventory. According to Redfin, nearly 25% of residential properties sold in the D.C. area in April 2023 were bought entirely in cash, up 5.5 points from the previous year.
Renting is becoming an increasingly attractive option. August rents increased just 0.3% year-over-year in D.C., prompting some analysts to consider renting as a more favorable financial decision for the moment.
Real estate agents advise buyers capable of handling the mortgage rates to buy now, warning that there’s no evidence of prices declining in the next five to ten years.

Who's Trying to Buy a Home in America? A Portrait of Aspirational Buyers.

The face of the American prospective homebuyer is changing, skewed older and better off financially than those who typically succeed in buying, according to data from Zillow.
The median age for aspiring buyers is 39, compared to the median age of 35 for successful buyers. Moreover, about 62% were born before 1980, and only 22% are 20 or younger.
The reasons are largely financial. With the median home price at $349,770 and an average 30-year fixed mortgage rate at 7.18%, it's no wonder more than half of younger generations feel they’d need a lottery win to afford a home.
As for income, the typical aspiring buyer reports a household income between $100,000 and $124,999, significantly above the national median of $74,580 as of 2022.
Despite higher incomes, many still struggle with down payments; 52% have delayed the buying process at least once to save up. Moreover, 56% plan to put down less than the recommended 20%, often due to student loan debts.
Climate risk is also playing a role in purchase decisions. Eighty-three percent of prospective buyers say climate factors, like flooding and wildfires, are affecting where they choose to buy.
In places like Florida, these risks are also driving existing homeowners away, adding another layer to an already complex housing picture.

Warning Sounded on Real Estate 'Climate Bubble'.

A new report from First Street Foundation, a non-profit focusing on climate risk, suggests that the U.S. real estate market is facing a "climate bubble."
According to the report, property values have not adequately accounted for the cost of climate risks, including wildfires, floods, and wind.
Regulatory efforts to maintain affordable property insurance rates have artificially suppressed these costs, causing a potential bubble in property valuations.
Insurance companies are already responding by raising rates, dropping policies, and pulling out of high-risk regions, leading to a predicted "deflation" in property values. In Miami, the most expensive market for homeowner's insurance in the U.S., the average annual insurance cost is over $5,000.
As a result, homeowners are increasingly turning to state-backed programs like Florida's Citizens, which has added 125,000 new policies in Miami-Dade County since 2016.
Nationwide, around 6.8 million properties have been affected by these increasing insurance costs and potential devaluation.
The report suggests that approximately 39 million overvalued properties could face similar corrections.
Despite these warnings, the Miami Association of Realtors notes that the Florida market has yet to see any significant impact, with home prices appreciating for 140 consecutive months.

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