What Home Buyers Should Know Now That Mortgage Rates Are Above 7%
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What is the main topic discussed in this episode?
Listen at schwab.com slash washingtonwise.
Here's your Money Briefing for Friday, August 18th. I'm J.R. Whelan for The Wall Street Journal.
What does the recent rise above 7% in 30‑year mortgage rates mean for buyers right now?
Mortgage rates are back above 7% and now sit at their highest level in two decades. That's put the housing market in a bind.
All of these things are making it a tough time for homebuyers who are already stressed by the lack of inventory out there to buy and also home prices in general haven't backed off much in many places in the country.
We'll talk to Wall Street Journal personal finance reporter Veronica Dagger about the outlook for rates going forward after the break.
Listen at schwab.com slash washingtonwise.
Mortgage rates rose to 7.09% this week, their highest level in 20 years. What does that mean for people in the market for a new home? Wall Street Journal personal finance reporter Veronica Dagger joins me.
How are mortgage rates determined and why do they track the 10‑year Treasury yield?
So, Veronica, what typically causes mortgage rates to rise and fall?
Mortgage rates are influenced by what the Federal Reserve says about inflation. And while the Fed doesn't directly set mortgage rates, their comments about the heat or lack of heat in the economy do influence mortgage rates. Mortgage rates are more closely tied to the 10-year Treasury yield, and that's remained high despite promising inflation data and expectations from the Fed that rates will ease. It's a tricky time for buyers because we're in a situation where the difference between mortgage rates and the 10-year yield has been larger than usual. And this 10-year yield seems to be stuck relatively high. And even if the Fed is backing off inflation, mortgage rates could still remain high if that 10-year yield still remains high.
When we look at the broader economy, what specifically has caused the rates to push past 7 percent recently?
Which economic factors have pushed mortgage rates past 7% recently?
It's a mix of things. The ongoing strength of the economy is a good thing, but a bad thing, because when you think about inflation, even though it backed off some, we still have it. We've got strong job growth. We've got strong pay raises still generally. And so all of these things makes for a hotter economy and pushes up overall the cost of a mortgage. So all of these things are making it a tough time for homebuyers who are already stressed by the lack of inventory out there to buy and also home prices in general, which haven't backed off much in many places in the country.
Is it similar to the more money people have, the more they buy things, the more expensive they would get in the store because they're driving up the value of it?
Yeah. I mean, that's definitely a big part of it for sure. The tough part for buyers, though, if mortgage rates do drop, that's going to push more people into the housing market. And so then home prices, which in certain areas have been easing off, are going to go up. So it's like, when can buyers win? Right.
Yeah, let's talk about the effect on the housing market. A big challenge for people who do want to move and do buy a home is that people haven't been selling.
Why are homeowners reluctant to sell when mortgage rates are this high?
Well, to your point, why give up your 3% mortgage rate that you probably refinanced during the pandemic if you have one? You probably got a 3% mortgage rate or even less. And why would you conceivably want to give that up? It's such an amazing rate that hasn't happened in decades. If you are a seller, you're most likely a buyer too. So if you were going to sell, you have to think about, okay, where am I going to go next? And what mortgage rate am I going to get? Who's going to want to go from a 3% mortgage rate to a 7% mortgage rate? It doesn't make good financial sense.
The 7.09% number we're talking about, that's the number from Freddie Mac. Is that a concrete number? Is there any wiggle room?
so much of the mortgage rate you as an individual pay is so much based on your own situation. So There's things like your debt to income. So if you have a lot of debt and you don't have a lot of income, it's going to be really tough for you to get a mortgage. In terms of the mortgage rate you pay, it's one of those things that can be negotiated.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:01–0:36
2
What does the recent rise above 7% in 30‑year mortgage rates mean for buyers right now?
0:36–1:55
3
How are mortgage rates determined and why do they track the 10‑year Treasury yield?
1:55–2:54
4
Which economic factors have pushed mortgage rates past 7% recently?
2:54–4:02
5
Why are homeowners reluctant to sell when mortgage rates are this high?
4:02–5:59
6
How much can an individual shopper influence the mortgage rate they pay?
5:59–7:33
7
Should prospective buyers wait for rates to fall or buy now and refinance later?
7:33–8:20
8
What do economists expect for mortgage rates by the end of the year and what should listeners watch for?
8:20–9:04
Speakers
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