{"id":21271,"date":"2022-11-09T13:47:26","date_gmt":"2022-11-09T13:47:26","guid":{"rendered":"http:\/\/www.anthonydidonato.net\/wordpress\/?p=21271"},"modified":"2022-11-09T13:47:26","modified_gmt":"2022-11-09T13:47:26","slug":"what-happens-when-mortgage-rates-break-7","status":"publish","type":"post","link":"https:\/\/www.anthonydidonato.net\/wordpress\/what-happens-when-mortgage-rates-break-7\/","title":{"rendered":"What Happens When Mortgage Rates Break 7%?"},"content":{"rendered":"\n

NAR Chief Economist Lawrence Yun paints a picture of what could happen with borrowing costs once it passes a critical threshold.<\/p>\n\n\n\n

Mortgage rates remained just shy of 7% this week\u2014the 30-year fixed rate loan is at 6.94%\u2014which could be a \u201cnew normal\u201d after recent rapid increases in borrowing costs, says Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS\u00ae. Mortgage rates have been hovering near 7% for the last month.<\/p>\n\n\n\n

Higher mortgage rates are prompting home buyers to adjust their price points so they don\u2019t go over budget. A year ago, a home buyer looking to spend about $1,500 on a monthly mortgage payment could afford a $380,000 home, says Lisa Sturtevant, chief economist for Bright MLS. Today, with mortgage rates more than double what they were a year ago, that budget has dropped to $250,000. \u201cIn many areas of the country, homes in this price range don\u2019t exist,\u201d she says. First-time home buyers may be hit particularly hard because they don\u2019t have equity to roll into a new home purchase, Sturtevant adds.<\/p>\n\n\n\n

The heights that mortgage rates have reached caught the housing market off guard. \u201cAt the beginning of the year, it seemed very unlikely that mortgage rates would push past 6%,\u201d Sturtevant says. \u201cNow the question is how high will they go? A lot of the answer depends on how aggressive the Federal Reserve is going to go on rate hikes in its next two meetings. But the impacts of the Federal Reserve\u2019s actions are crystal clear: The Fed will continue to raise rates in an attempt to tamp down inflation, even if it causes pain in the short term.\u201d<\/p>\n\n\n\n

NAR Chief Economist Lawrence Yun warned at the recent National Association of Real Estate Investors conference in Atlanta that mortgage rates could rise up to 8.5%, \u201cwhich would be another big shock to the housing market.\u201d With inflation outpacing wage growth, the typical family is spending more than 25% of their income on mortgage payments, Evangelou writes at the association\u2019s blog, Economists\u2019 Outlook<\/a>. \u201cIncluding other expenses, such as mortgage insurance, home insurance, taxes and expenses for property maintenance, homebuying costs exceed 30% of a typical family\u2019s income,\u201d she notes. Many financial experts consider households in this situation to be cost-burdened.<\/p>\n\n\n\n

Mortgage rates at 7% were typical in the mid- to late-1990s and early 2000s. But home buyers today are facing high inflation and more expensive home prices. \u201cThe 30-year fixed-rate mortgage continues to remain just shy of 7% and is adversely impacting the housing market<\/a> in the form of declining demand,\u201d says Sam Khater, Freddie Mac\u2019s chief economist. \u201cAdditionally, homebuilder confidence has dropped to half of what it was just six months ago, and construction\u2014particularly single-family residential construction<\/a>\u2014continues to slow down.\u201d<\/p>\n\n\n\n

Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 20:<\/p>\n\n\n\n