Higher Mortgage Rates Cause Would-Be Homebuyers to Reconsider Renting
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Here's your money briefing for Wednesday, September 7th.
How have mortgage payments changed compared with rents since 2020?
I'm J.R. Whelan for The Wall Street Journal. It costs a lot more to buy a home than it did a year ago, and rents have gone up a lot too. But for many people, rising mortgage rates have tipped the scale, causing them to put off making a purchase.
So we had people that, you know, were in contract to buy a house but had to pull out. And then instead of looking for a new house, they decided to rent, just sort of waiting for the market to calm down a bit.
On today's show, we'll talk with our economics reporter, Ben Eisen, about the struggles prospective homebuyers are facing and why some people are looking past higher mortgage rates and home prices and taking the plunge anyway. That's after the break.
Mortgage rates ticked back up to 5.66% last week, about double what they were a year ago. And that's stopped many prospective homebuyers in their tracks. Some who had plans to buy are now struggling with the decision to go forward or rent instead. Wall Street Journal economics reporter Ben Eisen has been closely following the housing market, and he joins us with more. Hey, Ben, thank you very much for being with us.
Why are rising mortgage rates causing some buyers to back out of contracts?
Thanks for having me.
So Ben, we've talked on the show before about how both home prices and rents have risen significantly over the past year, but not equally. So can you put the numbers in context for us? How much have mortgage payments outpaced rents?
So when we look back to the fourth quarter of 2020, median mortgage payments and median asking rents were basically the same. They were just under $1,200. And since then, rents have risen about 10%, while mortgage payments have risen 58%. So while we know that rents and home prices have both risen pretty quickly, the differential really has a lot to do with interest rates. So when interest rates rise as much as they have, you have just the actual mortgage payment itself rises a lot quicker because of the additional interest.
What kind of an effect has that had on the home buying market?
So it's really had a very cooling effect on the home buying market so far. The market has really slowed. About 16% of buyers in contract to purchase homes in July backed out. And this is according to a Redfin analysis. It's really one indicator of just how much the actual housing market has slowed, that people who have agreements in place to buy houses are pulling out. Because last year, you know, there was such a frenzy of buying that basically never happened.
Now you've spoken to people who've had plans in place to buy a home, but then they had to change course. What do they tell you about that struggle and how they're dealing with it?
So we've spoke with a number of people who were sort of at this fork in the road deciding whether to buy or rent. And the folks that we spoke with decided to rent.
What decisions are prospective buyers describing when choosing to rent instead?
So we had people that were in contract to buy a house but had to pull out. And then instead of looking for a new house, they decided to rent, just sort of waiting for the market to calm down a bit. We spoke to another family that was moving from Colorado to Arizona, and they sold the house that they owned in Colorado and had to decide what to do when they got to Arizona. But the housing market was prohibitive enough that they decided to rent, at least for the moment, hoping that, again, that they could sort of wait things out and buy a house when the market was more favorable for them. What's really interesting about speaking with people who are going through this at the moment is that a lot of them really had all of their decks in a row.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:00–0:38
2
How have mortgage payments changed compared with rents since 2020?
0:38–1:44
3
Why are rising mortgage rates causing some buyers to back out of contracts?
1:44–3:15
4
What decisions are prospective buyers describing when choosing to rent instead?
3:15–4:58
5
How do higher interest rates reduce the purchasing power of home sellers moving to a new market?
4:58–6:43
6
What reasons are people still buying despite higher rates and prices?
6:43–7:16
7
Have mortgage rates or home-price trends recently eased affordability, and how?
7:16–7:20
Speakers
3 identifiedMore from WSJ Your Money Briefing
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