What does a 7% mortgage rate mean for the housing market?

Higher mortgage rates | mortgage rate news

Mortgage rates tick to 7%

Rates continued to rise on Tuesday and ended the day right around 7.0% for a 30-year fixed rate mortgage depending on where you looked.

The upward trend in mortgage rates has led to buyers and sellers staying out of the market. According to the experts at Barron’s, buyers are uneasy about jumping into mortgages at the current rates, and sellers don’t want to give up their existing mortgages that likely have lower rates than current conditions.

Unless the Federal Reserve sees a change in inflation numbers, the market will likely stay at this point unless home prices start to go down. We’ve seen softening in a few areas, but not the widespread lowering of home prices that is necessary to make homes affordable.

Repeat of the housing bubble?

According the team at Yahoo Finance, we are not repeating the same housing bubble that we saw earlier in the decade.

First, they believe that lenders have been much better about who they lend to. The majority of the new mortgage loans started since 2019 have gone to prime borrowers with higher credit scores. Second, ARM (adjustable-rate mortgages) aren’t nearly as popular as they once were. This means that fewer lenders are subject to interest rate volatility. Lastly, 99% of outstanding mortgages have a locked-in rate that is lower than the current market. Most current homeowners are not impacted by rising mortgage rates.

Case Shiller & FHFA Housing Price Index

Both the Case-Shiller and FHFA Housing price indexes came out on Tuesday, and they reported similar information.

The Case-Shiller house price index saw a month-over-month decrease in the 3-month average of closing prices in May, June, and July. It also showed declines in 12 of the 20 major markets that it tracks.

The FHFA housing index observed that housing prices fell 0.6% when comparing July data to June data, while housing prices rose 13.9% when comparing July 2021 to July 2022.

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