Rising Mortgage Rates Add to the Challenge of Buying a House

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Rising Mortgage Rates Add to the Challenge of Buying a House

Some buyers — particularly first-time buyers — may choose to wait until even higher rates help cool prices later in the year. The largest proportion of home buyers are millennials ages 21 to 40, many of whom are first-time buyers, according to the National Association of Realtors.

“The spring season is going to be very interesting,” said Lawrence Yun, the Realtors Association’s chief economist.

Ultimately, the housing market needs an increase in inventories, Mr. Yun said. “We need a supply of empty homes.” Builders have faced challenges keeping newly built homes affordable, including high lumber prices and difficulty finding construction workers.

Buyers may need to consider cheaper housing in less urban areas, Mr Yun said. That may depend on whether homeowners expect to continue working remotely.

One variable in the number of homes for sale is the settlement of mortgage forbearance granted during the pandemic. Many homeowners were able to resume payments after their payment pause ended. But some may not be able to, forcing them to sell their homes, said Michael Fratantoni, the Mortgage Bankers Association’s chief economist. The number of borrowers on forbearance has fallen to an estimated 705,000 homeowners at the end of 2021.

Frequently asked questions about inflation

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What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar won’t go as far tomorrow as it did today. It is usually expressed as the annual change in the price of essential goods and services such as food, furniture, clothing, transportation and toys.

What Causes Inflation? This may be the result of increasing consumer demand. However, inflation can also rise and fall on developments that have little to do with economic conditions, such as E.g. limited oil production and problems in the supply chain.

Is inflation bad? It depends on the circumstances. Rapid price increases mean problems, but moderate price increases can lead to higher wages and job growth.

Can inflation affect the stock market? Rapid inflation usually spells trouble for stocks. Financial assets in general have historically performed poorly during inflationary booms, while tangible assets like houses have held up better.

As always with real estate, the conditions are different. Agents in some hot markets say a rise in interest rates may take time to affect prices because some buyers don’t need financing to buy homes. Kyle Schelvan, an agent for Team Asa, part of eXp Realty, in Orlando, Fla., said homes in the area were often bought by people who had sold homes elsewhere and used their cash proceeds to buy homes in Florida. Traditional buyers sometimes have to take steps they would have previously thought absurd, he said — like buying a tenant-occupied home and waiting months for the lease to expire before they can move into the property. “It’s a challenge,” he said.

Here are some questions and answers about mortgage rates and the housing market:

Adjustable-rate mortgages, or ARMs, offer a fixed rate of interest for a set period of time before switching to a variable rate. The loans got a bad rap during the 2008 housing crisis because some lenders gave them to unskilled buyers who couldn’t afford the larger payments when interest rates rose. Persistent skepticism about adjustable loans, combined with low interest rates on fixed-rate mortgages in recent years, has meant ARMs are unpopular, Black Knight’s Mr. Walden said.