Bad news if you're looking to buy a house in the next two years

Mortgage Rates and the Future of Home Buying #

Americans aspiring to buy homes face challenges with rising mortgage rates. After reaching two-decade highs near 8% last year, rates dipped to almost 6% in September but have climbed again. This week, the average rate for a 30-year fixed mortgage was 6.84%, marking the seventh increase over eight weeks. Economists predict these rates will remain above 6% for at least two years, stalling any return to previous low rates of 3%, 4%, or 5%.

Projections show mortgage rates averaging 6.3% through next year, staying near that level until 2026. An anticipated tough year for home sales, the market is projected to hit the lowest level since 1995 due to rising home prices and persistent high mortgage rates. Home prices haven’t seen a decline in over a year, and the recent dip in borrowing costs was insufficient to energize home-buying activity.

Potential policies after a presidential election involved could reignite inflation, complicating interest rate reductions. Proposed tax cuts and increased expenditure may lead to a national debt increase, requiring more government borrowing and pushing Treasury yields higher. Since mortgage rates are closely linked to the 10-year US Treasury yield, this might worsen conditions for prospective homeowners.

The recent increase in mortgage rates also stems from strong economic performance, which could impede rate cuts in the near term. Robust employment and retail data prompted bond yields to rise. Recent inflation data further propelled yields higher. Additionally, the bond market appears to have reacted to potential impacts on the US economy post-election, heightening concerns over inflation and price increases.

Some believe that the national debt under new policies could be problematic for the bond market. Investors express concerns over the sustainability of fixed-income investments amid increasing national debt and call for responsible spending. Many potential homebuyers, anticipating a drop in interest rates, have hesitated on purchasing homes.

Yet, the strong economy brings benefits too, with ongoing job growth and increased housing inventory. A healthy job market, with wage increases and stable employment, helps manage high mortgage rates. Total housing inventory has grown, and many previously reluctant homeowners are now selling due to personal circumstances. Acceptance of 6%–7% mortgage rates as the new norm could drive home sales through job gains and household formation.