The US housing market’s stagnation has gotten even worse

US mortgage rates have reached a 20-year high this week
Wait-and-watch mode.
Wait-and-watch mode.
Photo: Joe Raedle (Getty Images)
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The meteoric rise of mortgage rates has zipped past another milestone this year.

For the first time since April 2002, the 30-year fixed-rate mortgage (FRM) topped 7% this week, according to data from Federal Home Loan Mortgage Corporation (Freddie Mac).

The skyrocketing rate will lead to “greater stagnation in the housing market,” the corporation chartered by Congress in 1970 warned.

The pandemic boom pushed home prices up already, and high inflation has weakened consumer confidence and purchasing power. The central bank hiking interest rates is making the cost of borrowing even more exorbitant. Consequently, more and more potential homebuyers and sellers are assuming a wait-and-watch mode.

Home sales have slid for eight months straight and are likely to keep falling.

Charted: The rapid rise of mortgage rates

Quick recap

March 2020: For the first time since May 2019, mortgage rates cross the 4% mark

April 2020: Mortgage rates crossing the 5% threshold is received positively—it’ll help cool down the pricey and fast-moving market of the last two years

June 2020: Responding to the Federal Reserve’s tighter monetary policy, interest rate-sensitive mortgage rates fly past 6%. For buyers, homes are getting more expensive and for sellers, they’re fetching lower prices.

October 2020: Rates cross 7%, causing further stagnation

What economists say about housing market conditions

Should you buy a house now?

“There’s more to the decision than just mortgage rates and where home values are headed. Those things are important, but a lot of other factors–like how long someone plans to stay in a home and their risk tolerance–matter, too. If someone is going to stay in a home for 10 years, it’s unlikely the home will lose value. Seven percent mortgage rates are a tough pill for a lot of people to swallow. But there is a silver lining to high rates: Competition is low and buyers have the opportunity to negotiate with sellers.” —Taylor Marr, Redfin deputy chief economist

Should you sell a house now?

“For some homeowners, like retirees downsizing or people moving to a more affordable area, now is still a fine time to sell. It really depends on what stage of life you are in, and whether you are ready to cash out.” —Daryl Fairweather, Redfin Chief Economist

Steer clear of Pandemic boomtowns

👍 The housing markets in the Midwest and East Coast region largely did not get a superficial pandemic boost, so their home prices exhibit less volatility and more stability. Buying in Chicago, Milwaukee, or upstate New York is less risky because there’s a low chance of home values falling in those regions.

👎 Buyers in pandemic boomtowns, especially in the Sun belt—think Las Vegas, Phoenix, Tampa—have been pulling out of deals, sometimes in anticipation of lower prices. These markets are due for a sizable cooling off.

By the digits: Mortgage rates have to come down

8%: a higher mortgage rate which could spook the housing market even more is “coming soon,” according to Jeff Lazerson of MortgageGrader

15% vs 30%: share of Black households vs White households that can afford to buy a typical home at a 7% mortgage rate

4.5%: Rate at which the 30-year fixed mortgage rate will average in 2023, according to government-sponsored lender Fannie Mae’s housing forecast

44%: share of 107 economists and housing experts polled by real-estate company Zillow who believe the housing market will shift in favor of home buyers by the end of 2023

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