Housing prices and interest rates ‘aren’t going back down,’ expert says

·Personal finance writer
·4 min read

Mortgage rates recently surged to the highest level in two years, leaving homebuyers on high alert as further increases loom.

“Things aren’t going back down,” DLB Financial Services CEO Debbie Boyd told Yahoo Finance Live (video above). “So we have to quit thinking this is a bubble and just start thinking that this is it now. This is the real thing.”

The rate on the 30-year fixed mortgage — the most common loan for homebuyers — increased to 3.92% last week from 3.69% the previous week. That’s the highest level since May 2019, according to Freddie Mac, and well above the average of 2.81% a year ago.

The surge in rates followed an increase in 10-year Treasury yields, which rose above 2% for the first time since 2019 earlier this month. Solid employment growth for January and a high inflation report are likely to accelerate the Federal Reserve’s plan to increase benchmark interest rates to combat inflation, which is running at a 40-year high.

“I think we're going to have three, maybe four hikes this year. Doesn't mean they're all going to be huge,” Boyd said. “But even an eighth of a point, or a quarter of a point does trickle down through the markets, and it makes everybody nervous.”

Mortgage rates hit their highest level in over two years, with the average 30-year fixed loan reaching 3.92%. (Credit: Freddie Mac).
Mortgage rates hit their highest level in over two years, with the average 30-year fixed loan reaching 3.92%. (Credit: Freddie Mac).

We are used to historically low rates

Though recent rate increases have helped fuel homebuyer sentiment to plummet, the housing market has remained red hot.

“If you need a new house, you're going to go buy a house. If you're moving across the country and have to relocate, you're going to be buying a house,” Boyd said. “It doesn't matter what the price is.”

The average sales price across the country for an existing single-family home rose 14.6% to $361,700 in the fourth quarter of 2021, according to the National Association of Realtors. As a result, entry-level homebuyers generally spent up to 25.6% of their household income on mortgage payments, further straining affordability for young buyers.

Residential single family homes construction by KB Home are shown under construction in the community of Valley Center, California, U.S. June 3, 2021.   REUTERS/Mike Blake
Residential single family homes construction by KB Home are shown under construction in the community of Valley Center, California, U.S. June 3, 2021. (Credit: Mike Blake, REUTERS)

“Real estate markets are caught in a lopsided dynamic with many buyers eager to find the right home before rates rise even higher, but very few available homes for sale as a result of almost a decade and a half of underbuilding,” said George Ratiu, Realtor.com’s manager of economic research. “The benefits that ultra-low interest rates provided over the last two years are wearing off and affordability is becoming a huge hurdle for many buyers.”

Still, rates are historically low. By comparison, the average rate on the 30-year fixed mortgage reached an all-time high of over 18% in 1981, according to Freddie Mac.

“We are used to now historically low interest rates. I remember when I got a 5.50% rate several years ago, like 10 years ago, and that was a great rate,” Boyd said. “So it's all in what we're used to. We've forgotten that rates were higher than 2% at one time.”

A home is offered for sale by owner on January 20, 2022 in Chicago, Illinois. Nationwide, existing-home sales declined 4.6% in December from the prior month. This drop in sales is mostly attributed to a shortage of homes on the market. (Photo by Scott Olson/Getty Images)
A home is offered for sale by owner on January 20, 2022 in Chicago, Illinois. Nationwide, existing-home sales declined 4.6% in December from the prior month. This drop in sales is mostly attributed to a shortage of homes on the market. (Credit: Scott Olson, Getty Images)

Now is the time to refinance or invest

While rising mortgage rates will likely price out many young and moderate-income first-time homebuyers, now could be a good time to lock in a rate if you want to refinance or are looking to invest.

Homeowners rushed to refinance their mortgages in January during a three-week break from rate increases that added more than a half-point to the 30-year fixed rate last month.

“Call it a preemptive strike of getting a refinance in place before mortgage rates run any higher,” Keith Gumbinger, vice president of HSH.com, previously told Yahoo Money.

Last week’s increase in rates cut down the population of high-quality refinance candidates who could shave three-quarters of a point from their mortgage to 3.8 million, according to figures mortgage technology and data provider Black Knight previously gave Yahoo Money. That’s down from 5.1 million the previous week.

So now’s the time to refinance. The same holds true for any real estate investors, Boyd said, before rates climb to 4%.

“So you're going to be buying a little bit more expensive with a little more expensive money. But it's not going to get cheaper,” Boyd said. “So if this is the market you want to get in, you need to get in now.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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