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Fed interest rate hikes are putting the housing market in limbo

Yahoo Finance Live’s Brian Sozzi discusses the current state of the housing market amid rising interest rates.

Video Transcript

- A recent surge in mortgage rates is causing homebuyers to delay or cancel their plans to purchase a home. A new report from Redfin says sellers should adjust their price to stay competitive. The housing market chaos is where we find Sozzi's Take today. Sozzi?

BRIAN SOZZI: Yeah, if there's chaos, best believe I will be there. And I was just reading this Redfin report. And I said to myself, WTF? The charts that were in this report were absolutely shocking and I think went a long way to show the early impacts of rising interest rates. And there I am just tracking some of that chaos.

First up, let's run through these. Mortgage payments-- mortgage payments up 50.2% year-over-year, according to Redfin. Currently, homeowners are paying about $2,547 in January of this year. That price was a shade under $1,700, so mortgage payments on the rise.

Next chart-- pending home sales down 21.3% year-over-year, again, according to Redfin data. Next, new listings down 14% year-over-year, as people that own homes are seeing the market starting to slow down. They're just not putting their home for sale on the market at the same pace they were at the height of the COVID-19 pandemic. And then last but not least here, 7.6% of listings had price drops according to Redfin, which is just fascinating data.

But you put it all together, and that leads me to my take. It's just this is the early impact of when the Fed is out here aggressively raising rates. That's me standing next to the home I may never own. But still, when you are raising rates at this rate, at this pace like the Fed is doing, it is now starting to uproot what is otherwise been a healthy housing market.

And you think about over the next few months, what are you going to hear from homebuilders? You look at a Toll Brothers, Hovnanian. I'd be shocked if they come out here and report anything good in terms of guidance.

- Yeah, Toll Brothers, KB Homes, sure-- naturally, we follow those because it's coming down to how much they're actually going to be able to deliver on some of the homes, too, that people are even saying, yeah, I feel comfortable making sure that I can have the financing for this home that might be delivered a little bit later than expected.

But then it's also on the existing home side and tracking what we've seen with Redfins-- less bids on existing homes that are on the market. That is particularly noteworthy, especially moving forward. If you have people spending more on necessities, especially within the home, how much does that actually create a vacuum for some of the other discretionary purchases that they may make as well over time?

BRIAN SOZZI: No, that's right. An extra $1,200 per month for a mortgage payment-- maybe that's no car payment. Maybe you're not going out there and getting a new car. Maybe you're not taking care of your lawn at the same pace that you were. Maybe that's not a kitchen upgrade. So it's-- these are big numbers.

- Or you're just not buying a house.

BRIAN SOZZI: Or you're just not buying a house. Yeah.

- I think that's more what's happening than anything else.

- Well, Mercedez-Benz just came out with a new bike that perhaps I'll take a look at.

BRIAN SOZZI: Show me yours.