Why? Well, because sky-high rents have been spiraling faster than home prices in the last decade, which will continue to push many Americans toward home ownership. With a fixed-rate mortgage, they can budget a stable monthly housing expense for the next 15 or 30 years.
In an interview with Wharton Business Daily on SiriusXM, Keys said, “What’s fascinating about the housing market right now is the forces of supply and demand seem to be out of whack.” He went on to say, “We are in a really unique housing market right now, where we have both interest rates rising and we have housing prices rising.”
Mortgage rates have increased across all categories in the last several weeks, following the Federal Reserve’s first rate hike since 2018 to fight inflation.
Last week, the interest rate on a 30-year fixed-rate mortgage topped 5%, compared with less than 3% a year ago. The jump corresponded with a 40% drop in mortgage applications from a year ago.
Keys said the rate hikes immediately incentives current homeowners to stay put because they’re “locked in” to the great low rates they got over the last few years. It also “locks out” prospective homebuyers who now have to worry about higher interest rates adding hundreds of dollars a month to mortgage payments on homes that are already priced historically high.
Still, demand for housing is outstripping supply. In addition to rising rents and the scarcity of rental units, other demographics are contributing to the trend: a strong labor market, higher personal savings during the pandemic and millennials who survived the Great Recession and are now financially ready to buy homes for their growing families.
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