NEW YORK (AP) – Americans’ path to homeownership is likely to get more expensive this year, even as a severe shortage of homes for sale shows signs of easing.
Mortgage rates, which climbed through much of last year, will continue to rise in 2019, driving up homebuyers’ borrowing costs and shutting others out of the market entirely. The projected result: A cooling housing market and falling home sales nationally.
“On the whole, it’s going to be more expensive for buyers next year, despite the fact that they’ll have more options,” said chief economist at Realtor.com Danielle Hale.
The United States (US) housing market stalled in 2018 after a long period during which price increases outpaced income growth. That had been offset by historically low mortgage rates, until rates began rising steadily a year ago.
While still low by historical standards, the average rate on a 30-year home loan was 4.55 per cent last week, according to mortgage buyer Freddie Mac. That’s up from 3.99 per cent a year earlier.
Realtor.com and Redfin forecast the rate on a 30-year, fixed-rate mortgage will rise to 5.5 per cent by the end of 2019. Zillow expects rates will reach 5.8 per cent. That would be rates’ highest level since the last recession.
A mere extra half percentage point can boost monthly payments and add tens of thousands of dollars in interest over the life of the typical 30-year loan.
“Rising mortgage rates will take a bite out of affordability on top of an already supply-constrained and high-priced housing market,” Trulia senior economist Cheryl Young wrote in her forecast.
As mortgage rates increase, so does the pressure on would-be buyers to lock in a rate and close a deal.
Nate Vogel, a homebuyer in the Denver suburb of Lafayette, has felt some of that pressure after about a year looking for a home without success.
Because of the limited number of homes for sale, especially under USD500,000, the software engineering manager recently decided to look at homes at the top of his budget, USD$650,000. But that could be a problem if mortgage rates continue climbing.
“If that interest rate goes up another per cent, that would make things much more uncomfortable,” said Vogel, 37. “At this point, no matter what house I buy, I’m sure the interest rate will probably be higher and the payment will be more.”
Higher mortgage rates have already started dampening home sales. As of November last year, sales of previously occupied US homes were down seven per cent from a year earlier, the steepest decline since May 2011, when the housing market had yet to bounce back from the bust.