Interest rates are expected to soon rise, even as the Federal Reserve announced on Wednesday that it would keep its benchmark rate near zero. The Fed, however, warned that it was preparing to taper its emergency stimulus efforts from the pandemic, including winding down its bond purchases. That is expected to make mortgage rates rise, as well as rates on credit card and car loans.

“Tapering itself is going to increase yields in the medium- and long-term horizons, which will translate into higher borrowing costs,” Yiming Ma, an assistant finance professor at Columbia University Business School, told CNBC.

The Fed has purchased $40 billion worth of mortgage-backed securities each month as part of the stimulus program during the pandemic. That has brought a surge of liquidity into the mortgage market. It has allowed lenders to drop interest rates.

Mortgage rates have been ultra-low for over a year. Freddie Mac reported that the 30-year fixed-rate mortgage averaged 2.86% last week.

Long-term, fixed mortgage rates will move higher as soon as the Fed starts to slow the pace of bond purchases, Ma told CNBC.

“The moment the Fed starts pulling back, they will have an immediate effect,” George Ratiu, manager of economic research at realtor.com®, told MarketWatch. Even before the Fed does so, rates could rise. Mortgage rates follow long-term bond yields, like the 10-year Treasury note. Long-term bond yields began to rise after the Fed’s statement on Wednesday.

The National Association of REALTORS® has been predicting rates will rise over the next few months: They predict the 30-year fixed-rate mortgage to average 3.5% by mid-2022.

An increasing number of homeowners—particularly younger adults—are seeing their home as a potential revenue stream. They’re more open to renting out their home to generate extra money and help offset the costs of owning, finds a new survey of more than 3,000 consumers conducted by realtor.com®.

Thirty-two percent of consumers say they’ve already rented out a room, space, or outdoor feature of their property. Most often that means taking on a long-term roommate, but they’ve also rented a room on a short-term basis, such as an Airbnb, or rented outdoor spaces, like parking or their yard or pool. Six percent of respondents said they’ve rented their entire home while they were away.

What’s more, 69% of recent home buyers say they would rent out part of their home if it had a separate entrance, kitchen, and bathroom, the survey finds.

“As the next generation of home buyers has embraced ride-sharing and short-term rentals, it’s a natural next step that they begin to think of their biggest asset—their home—as a potential income stream,” says George Ratiu, manager of economic research at realtor.com®. “For people looking to take advantage of the sharing economy, in addition to traditional approaches, it may be worthwhile to explore creative solutions, such as listing your home as a vacation rental when you leave town or renting your outdoor space or pool. Even a small amount of income each month can multiple over a year or more and can turn into bigger returns.”

The main reasons homeowners are showing a willingness to rent out their spaces: extra income for savings (53%), extra spending money (37%), lessening the burden of general monthly expenses (35%), and offsetting major home expenses like the mortgage (29%), the survey shows.

Home prices have been posting double-digit annual increases. Bidding wars have quickly run up prices above list price. But for the most part, home buyers have not taken on more than they can afford.

Americans devote about 21% of their household income toward their monthly mortgage payments, according to a recent report from realtor.com®. That is higher than the monthly average of 19.6% seen over the last decade. But it is below the percentage of household income seen in 25.3% in August 2008, which led up to a housing crisis and the Great Recession.

Buyers today are in better financial shape than they were in 2008, the report said. They earn more money and have higher credit scores. That has allowed them to weather the higher prices: The median existing-home price for all housing types was $359,900 in July, nearly an 18% increase from a year ago, according to data from the National Association of REALTORS®.

“The key player in keeping payments reasonable is [mortgage] interest rates,” said Jiayi Xu, a realtor.com® economist. “A lower interest rate can increase buyers’ budgets and make monthly payments lower.”

Mortgage rates have been near historical lows for more than a year. The 30-year fixed-rate mortgage averaged 2.86% last week, Freddie Mac reported.

But mortgage rates are expected to rise. NAR is forecasting 30-year rates to rise to 3.5% by mid-2022.

Aside from rising mortgage rates, “if home prices were to keep accelerating by the double digits, that could also be trouble,” realtor.com® said. “Sale prices would need to rise 16.6% to see buyers spending as much of their income on housing as they did in 2008 the housing bubble. This assumes that down payments, mortgage rates, and incomes stay the same.”

If mortgage rates inch up just one-half of a percentage point, more consumers would be spending about 23.9% on housing. But that estimate assumes home prices stay steady from May, realtor.com® researchers said. However, mortgage rates would need to hit 4.2% for 30-year fixed-rate loans to surpass the 2008 record, researchers reported.

Still, “once interest rate increases a little bit, mortgage payments will increase a lot,” Xu said.

U.S. mall traffic rebounded this summer as newly vaccinated Americans felt more comfortable leaving their homes. The surge has continued despite growing threats from the fast-spreading COVID-19 delta variant.

“After a year and a half of staying inside, there was a pent-up demand for doing something, and that something could have been just going to a mall,” Sarah Helwig, an assistant vice president at Morningstar Credit Information and Analytics, told The Wall Street Journal.

Mall foot traffic in July surpassed even 2019 levels, according to Placer.ai, a data analytics firm. Mall visits rose 0.7% compared to July 2019, prior to the pandemic. Outdoor malls continued to be more popular.

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The rising foot traffic increased retail sales. That also offered good news to mall investors who in the initial months of the pandemic saw profits drastically decline from shutdowns and worried shoppers.

Justin Kennedy, managing partner of 3650 REIT, said his first priority is looking for more malls to invest in.

Still, Challenges Lie Ahead

The U.S. shopping mall sector does face some headwinds in the months ahead, however. Rising COVID-19 infections could make shoppers more comfortable staying home once again, analysts told The Wall Street Journal. Also, vacancy rates are still rising: Vacancies were at 13.7% over the past year for malls with securitized mortgages, according to Morningstar Credit Information and Analytics.

Older malls continue to struggle the most, especially those that have lost large department store tenants.

Also, fewer clothing retailers are signing leases, which is also prompting concerns about filling storefronts. More malls reportedly are considering nontraditional tenants that offer more entertainment options, such as trampoline parks or rock-climbing gyms.

“A trampoline park was not the most desirable tenant to bring to a mall a decade ago,” Corey Bialow, CEO of Bialow Real Estate LLC, a brokerage firm that represents retail tenants, told The Wall Street Journal. “Now there’s not a lot of people taking 30,000- to 50,000-square-foot spaces anywhere in the country.”

More real estate listings are coming to the market, but that won’t be able to make up for the fact that America is short millions of homes based on population needs. That likely means home buyers will continue to face inventory shortages and a dearth of homes for sale in the future.

The U.S. is short 5.24 million homes. That is an increase of 1.4 million homes from 2019, according to research from realtor.com®.

“The pandemic has certainly exacerbated the U.S. housing shortage,” said Danielle Hale, realtor.com®’s chief economist.

New-home construction—at its slowest pace since 1995—is not making up the difference either. About 12.3 million American households were formed from January 2012 to June 2021. However, only 7 million new single-family homes were built during that period, CNBC reports. Builders would need to double the new-home production pace to make up the gap in five to six years.

“No matter how you frame the scenario, it will take a more meaningful shift in the pipeline to meet demand in the foreseeable future,” Hale told CNBC.

Builders like PulteGroup say that they are actually slowing sales lately to try to keep pace with the backlog from the high demand over the last few months. Builders are facing labor and lot shortages as well as rising costs for building materials.

Home prices are quickly rising as demand outstrips supply. Homes with a median value of $300,000, which is considered more affordable by today’s standards, comprised just 32% of builders sales in the first half of this year, down from 43% during the same period in 2018, CNBC reports.

Home prices have been rising on existing homes as well as pressure continues from the increasing demand. The median existing-home price in July was $359,000, up nearly 18% compared to a year ago, according to the National Association of REALTORS®.

NAR released a report earlier this summer—Housing Is Critical Infrastructure: Social and Economic Benefits of Building More Housing—that called the state of America’s housing stock “dire.”

“There is a strong desire for homeownership across this country, but the lack of supply is preventing too many Americans from achieving that dream,” Lawrence Yun, NAR’s chief economist, said about the report’s findings. “It’s clear from the findings of this report and from the conditions we’ve observed in the market over the past few years that we’ll need to do something dramatic to close this gap.”

Mortgage rates followed the trend of the 10-year Treasury yield this week and inched lower. But these historically low rates—averaging 2.86% this week for the 30-year fixed-rate mortgage—are expected to rise over the course of the next few months.

The National Association of REALTORS® predicts that mortgage rates will rise to 3.5% by mid-2022 as the Fed will likely start reducing its bond purchases before the end of the year. Expect interest rates to rise in the middle part of next year, Nadia Evangelou, NAR’s director of forecasting, said on the association’s Economists’ Outlook blog.

But for now, the 30-year fixed-rate mortgage is mostly in a holding pattern under 3%.

“It’s Groundhog Day for mortgage rates, as they have remained virtually flat for over two months,” said Sam Khater, Freddie Mac’s chief economist. “The holding pattern in rates reflects the markets’ view that the prospects for the economy have dimmed somewhat due to the rebound in new COVID-19 cases. “While our collective attention is on the pandemic, fundamental changes in the economy are occurring, such as increased migration, the extended continuation of remote work, increased use of automation, and the focus on a more energy-efficient and resilient economy. These factors will likely lead to significant investment and new post-pandemic economic models that will spur economic growth.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Sept. 16:

• 30-year fixed-rate mortgages: averaged 2.86%, with an average 0.7 point, down slightly from last week’s 2.88% average. Last year at this time, 30-year rates averaged 2.87%.
• 15-year fixed-rate mortgages: averaged 2.12%, with an average 0.6 point, dropping from last week’s 2.19% average. A year ago, 15-year rates averaged 2.35%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.51%, with an average 0.1 point, rising from last week’s 2.42% average. A year ago, 5-year ARMs averaged 2.96%.

Freddie Mac reports average commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.