Nothing has been able to slow down soaring home prices lately—not even the highest inflation in 40 years. Will rocketing mortgage rates achieve what many dejected buyers and giddy sellers believe is impossible? Or will scores of first-time buyers continue to be priced out of homeownership?
Many homebuyers are hitting their financial limits just as the prime homebuying season kicks off this spring. Rising costs of just about everything are eating into down payment funds. Mortgage rates, which rose nearly a point and a half in the past year and are expected to keep going up throughout the year, are adding hundreds of dollars to the monthly payments of today’s buyers. And yet home prices just keep ratcheting up while the number of properties for sale continues to dwindle.
Today’s buyers are paying about 30% more for a house than they would have just a year ago when factoring in those higher sale prices and mortgage rates. That’s forcing many wannabe buyers to drop out of the market and put their dream of homeownership on hold as budgets can stretch only so far. Mortgage applications to purchase a home dropped 10.1% annually in the week ending March 25, according to the Mortgage Bankers Association.
Most real estate experts believe that higher mortgage rates will force price growth to slow down. While that would mean the end of double-digit increases, prices would continue to rise—just a bit slower. Some even believe prices might fall a little in the parts of the country where they rose the highest, pricing out locals.
“We’ve hit the ceiling for the housing market for a while,” says Mark Zandi, chief economist at Moody’s Analytics.
“The first thing to fall is going to be home sales. People just can’t afford to buy,” he says. “Then we’ll see price growth start to slow. Ultimately, I expect some price declines in some markets.”
