Housing: Theres no escape from higher costs, economist explains

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There was a big imbalance between supply and demand housing prices were going up at an unsustainably fast level so the deceleration housing prices that we’re seeing should help bring sort of prices more closely in line with rents and other housing market fundamentals um and you know that’s a good thing for the longer term what we need is supply and demand to get

Better aligned so that housing prices go up at a reasonable level uh at a reasonable pace and that people can afford houses again and i think we so we probably in the housing market have to go through a correction to get back to that place fed chair jerome powell a renewed emphasis on housing in the real estate environment today at the fed meeting after raising

Rates for 75 basis points also saying that there was uh weakened significantly is how he described housing in this environment the one area they’re seeing evidence of success beyond all else let’s talk about that with danielle hill realtor.com chief economist in terms of where we’re headed danielle your reaction to that statement from powell about a correction

Are you seeing compelling evidence that we are in correction territory is that still down the road we’ve certainly seen sales activity pull back significantly today’s numbers on existing home sales were down almost 20 percent compared to a year ago that’s the second month in a row where the declines have been about that large we know that the housing market was

Overheated at this time last year in response to very close to record low rates we are seeing now that buyers are responding as rates climb to new records home sales are pulling back and we’re seeing fewer transactions in the market daniel when you take a look at the potential correction here i guess how much worse do you see it potentially getting here for housing

In the coup in the next couple of months you know i think that remains to be seen a lot depends on what happens to mortgage rates we know that housing is a very interest rate sensitive sector you know the difference between uh five percent where we were you know just six weeks ago and over six percent now uh is is a pretty big payment shock and if you look at where

We are now compared to where we were um one year ago you know monthly mortgage payments are up 66 between the combo of higher mortgage rates and higher home prices so that’s a lot for households that are shopping to absorb uh i think as long as we see mortgage rates remain elevated it’s going to be hard to see uh sales activity pick up in a big and meaningful way

So then danielle for buyers sellers and renters who are seeing this announcement knowing that rates aren’t going to continue to climb and that the fed isn’t going to be slowing down anytime soon what are the big takeaways for them yeah i think given the higher rate environment it’s more important than ever to make sure that you’re financially prepared there’s really

Kind of no escape from higher cost as someone looking for a place to live right now whether you’re planning to buy whether you’re planning to rent you know home prices continue to go up by double digit on the asking price side sales prices uh today actually slipped into single digit territory for the first time but they’re still you know up more than seven percent

Compared to a year ago so if the prices of homes to buy and to rent are getting more expensive and then you factor in mortgage rates that adds an extra layer of cost for home buyers i think going in with a plan setting your budget and sticking to it it can be really tempting as prices go higher to just push that budget envelope a little bit but i think sticking to

Your budget in this important in in this environment is very important for buyers and on the plus side in the housing market as we see this pullback and buying activity those who can continue to remain in the housing market are finding that sellers may be a little bit more open to negotiating because they’re seeing fewer home buyers the market in many areas is not

Quite as competitive as it was a year ago we’re seeing month-to-month price declines they’re still gaining on a year-over-year basis but more importantly we’re seeing sellers in some cases reduce asking prices so that is actually back to roughly one in five homes whereas it was about half that at this time last year we’re looking at another jumbo hike possibly 75

Points at least 50 at the next meeting and look a fed funds rate of 4.4 by the end of next year where do you think mortgage rates are headed i’m hearing some feel we’re headed to at least seven percent yeah i think it’s possible but it’s not a given at this point um you know if you’re if you’re tracking the rates you know long-term rates have actually come down a

Little bit after the fed’s announcement today we’ll see if they they stay in that territory um but there’s usually some variability in the spread between short-term rates and mortgage rates there’s a little bit more consistency between 10-year treasury rates and mortgage rates and you know as 10-year treasury rates come down that gives mortgage rates some breathing

Room we are not necessarily going to see another 75-point basis point surge in mortgage rates but i do think as long as inflation remains rampant as long as we don’t know exactly what the end point will be for those short-term rates that continues to put upward pressure on mortgage rates danielle how long do you see this challenging environment that we’re currently

In right now how long do you see this lasting i think it really depends on inflation so that’s the that’s the key thing we need to see inflation get back to under control back you know moving steadily towards the fed’s two percent target we haven’t seen that in the annual data yet there’s you know some bright spots in the month of our month data on overall inflation

That was largely driven by energy prices we’re really going to need to see across the board in those core inflation indicators price growth decelerate significantly before we can say you know we’re close to the end on this tightening cycle and we can start to think about what it might look like if rates were to to trend lower and danielle how much of the pressure

That’s already on the housing market is being compounded when you look at things like home builder confidence when you look at you know what people are willing to spend and even if they have the labor to really complete some of these homes yeah i think that’s the most challenging thing right now is that the housing market remains in a long-term shortage situation

We haven’t built enough homes over the last decade to keep up with the number of households that have formed so whether you’re looking at rental vacancy rates or homeowner vacancy rates we see that housing is in relatively short supply in the big picture macro sense but if you look at the market of homes for sale we’re seeing improvement there are 25 more homes for

Sale right now compared to this time last year so we are seeing an improvement a little bit of a better balance between supply and demand in the transaction side but those vacancy remain rates remain close to record lows so there’s still plenty of opportunity for builders to build more but they’re facing headwinds when it comes to housing demand because of these

Higher costs because of the higher cost of financing because of higher mortgage rates it is going to be difficult for them to navigate this market going forward there’s plenty of long-term demand but in the short run we’re seeing demand pulled back because of the higher costs real estate geeks like ourselves we’re on pins and needles waiting to hear mortgage-backed

Securities and we heard that question and the fed chair said no we’re not even close to thinking about rolling those off the balance sheets apologies for this being so theoretical but when that begins when we begin to sell off our mortgage-backed securities any sense of what that means for the housing sector yeah so as the fed rolls off mortgage-backed securities

That should mean an increase in mortgage rates unless we see a big surge in other investors stepping in to make those mortgage-backed securities purchases so my best guess is that that’s going to be some upward pressure on mortgage rates some additional upward pressure when we get to that point so let’s put a bow on this thing with advice for the homeowner if

You’re sitting here watching mortgage rates continuing to go up in a slight cooling off to prices what’s your advice um so mortgages are going up if you’re a homeowner and you want to stay in your home you’re looking at record high levels of equity thanks to those price increases that we’ve seen interestingly even if we do see a correction or even a pullback in

Housing prices of 10 to 20 that would still put most homeowners or at least in aggregate homeowners would still have a record high share of equity so most homeowners are in a really good position i think it’s important for recent home buyers and those thinking about home buying to make sure they’re going in on as strong a financial footing as possible so that they

Are making decisions that can be sustainable for themselves in the long run don’t push your budget now is not the time to do that in the housing market

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Housing: There's 'no escape' from higher costs, economist explains By Yahoo Finance