Source: NPR —
AILSA CHANG, HOST:
The U.S. housing market today looks very different from the frenzied market of about a year ago. Sales of existing homes dropped for the seventh month in a row as of September. Builders are breaking ground on fewer new homes now than they did a year ago. And would-be buyers like Cheyenne Gordon are feeling a different kind of pain. You see, she and her partner recently looked at a house in Seattle that was around 650 square feet – about the size of an average studio apartment.
CHEYENNE GORDON: It was listed for $575,000. It sold for $125,000 over asking price. And that’s what it was like in April. Now, we can’t look at houses that are $575,000.
CHANG: That is because the interest rate for a 30-year fixed-rate mortgage in the U.S. has soared to nearly 7%. That’s the highest since 2008. And as painful as this is for would-be buyers, sellers and builders, all of this is kind of by design. You see, the Federal Reserve is trying to bring inflation under control by raising the cost of borrowing. Fed Chairman Jerome Powell explained the policy and the rationale after the Fed issued its fifth rate hike in six months.
(SOUNDBITE OF ARCHIVED RECORDING)
JEROME POWELL: We’ve had a time of a red-hot housing market all over the country where, you know, famously, houses were selling at 10% above the ask before even seeing the house – that kind of thing. Housing prices were going up at an unsustainably fast level. So we probably in the housing market have to go through a correction.
CHANG: You see, last year, homebuyers were competing in a red-hot seller’s market, having to move quickly and aggressively in bidding wars. That isn’t the case so much anymore, with high interest rates on mortgage loans and rising home prices slowing down home purchases.
CHRIS ARNOLD, BYLINE: Up until recently, I mean, prices were going up 30 to 40% in just two years, you know, because of those bidding wars. Talk about inflation, right? I mean, you know, OK, bananas cost more at the grocery store. But 30 to 40% in two years for a house – I mean, it’s crazy.
CHANG: That is NPR correspondent Chris Arnold. I spoke with him earlier about what it means now that mortgage rates have risen in response to the Fed’s effort to stamp out inflation.
ARNOLD: Mortgages anticipate where the Fed is headed with its rate hikes and where inflation looks to be headed. So they moved a lot very fast earlier this year, and now they’re all the way up near 7%. They started at 3%. On a $400,000 mortgage, that means $900 more per month on the mortgage payment – I mean…
CHANG: Wow.
ARNOLD: …Every month, nearly a thousand dollars.
CHANG: Yeah.
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