High interest rates hit homebuyers
The highest mortgage rates in more than two decades are keeping many prospective homebuyers out of the market and discouraging homeowners who locked in ultra-low rates from listing their home for sale.
The combination of elevated rates and low home inventory has worsened the affordability crunch. Where does that leave homebuyers?
Mike Miedler, CEO of real estate brokerage franchisor Century 21, recently spoke to The Associated Press about the challenges homebuyers face. He says the impact high rates are having on affordability and home inventory underscores the need for construction of more affordable homes.
With the average rate on a 30-year mortgage hovering above 7% since August, is this the new normal?
You’ve seen the fastest run-up in mortgage rates that we ever have in history. But I don’t see anytime soon we’re going to be going back to 2% or 3% mortgage rates. I think we’re probably somewhere in this 5% to 7% range for the foreseeable future.
The national home sales inventory has been inching higher, but remains very limited at around 1.1 million homes. What’s the solution?
(Homebuilders) are developing more of what I would call high-end properties, but not enough creative first-time homebuyer situation properties. And I think that’s really the solve to all of this.
After years of underbuilding, the pace of new home construction would need to ramp up sharply and remain elevated for years to make a dent in the housing shortage. Does that mean low home inventory for the foreseeable future?
If there’s not a lot of movement in rates, where a move-up buyer can see getting into a bigger home, something that is going to get them more bang for their buck, then you’re probably going to see this inventory issue persist. And we may continue to see somewhere along the lines of plus or minus 4 million existing homes sold, year over year, versus the normal 5 to 5.5 (million) that we’ve seen over the last decade or so.
Home prices skyrocketed during the pandemic and haven’t eased significantly despite the housing downturn began last year. Are you optimistic more first-time buyers will be able to afford to buy a home in the next few years?
It takes about nine years for the current generation to save for that 10% down (payment). When boomers were doing it in the 80s and 90s, it only took you about five years. And so I think that’s why you’re seeing more and more people having to go to the ‘bank of mom and dad’ to borrow. But that’s also why you’re seeing a lot of drive into more affordable markets. It’s a phenomenon that started in the pandemic where people saw they could work from home. They’re shifting to better tax destinations and better weather destinations, something I think we’re going to continue to see as these markets continue to be affordable for the younger generations.