Sep 16, 2022 - Economy

Don't hold your breath for lower mortgage rates

U.S. average 30-year fixed mortgage rates
Data: Freddie Mac; Chart: Tory Lysik/Axios

Mortgage rates have breached 6%, the latest avatar of an inflation-throttled economy that, even with its mounting challenges, is squeezing homeowners and leaving potential buyers with few affordable options.

Why it matters: There's little relief in sight for renter or homeowner sticker-shock, as inflation puts the Federal Reserve squarely on the path toward higher interest rates, even as the economy loses momentum.

Driving the news: Rates are surging and home prices have fallen, but not enough for would-be homeowners to jump into a market that some experts think has more downside than up. Redfin CFO Chris Nielsen told Axios’ Hope King this week that home prices have “held up,” even as new buyers are scared off by spiking costs.

  • "We haven't started to see any kind of oversupply that would typically be indicative of prices coming down a lot," said Nielsen.

The Fed means business on inflation, and that spells bad news for most people with credit or loans, who are paying incrementally more to carry those balances.

  • The WSJ notes that soaring borrowing costs in housing are “one of the most pronounced effects of the Federal Reserve’s campaign to curb inflation by lifting the cost of borrowing for consumers and businesses.”

What they’re saying: Analysts at Morgan Stanley pointed out this week that, with consumer prices still elevated (and shelter costs comprising nearly ⅓ of the CPI basket), “would-be homeowners [are becoming] would-be renters due to a deterioration in housing affordability.”

  • Veteran market watcher Peter Boockvar wrote this week that “the only question from here is to what extent do home prices slow the pace of gains, or outright drop in some markets that got way overheated.”

The bottom line: Eventually — but certainly not anytime soon — the Fed will be able to declare its mission against inflation accomplished, even at the cost of forcing the economy into an outright recession. That will nudge down mortgage rates, according Melissa Cohn, regional vice president at William Raveis Mortgage.

  • However, rates probably “won't go back to 3% — we would need another unwanted global crisis for that to happen — [and] we should be happy if they go back down to 4%,” she tells Axios via email.
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