Home buyers see ‘no benefit’ from housing prices, mortgage rates: Expert
William Raveis Mortgage Regional Vice President Melissa Cohn joins Yahoo Finance Live to discuss housing affordability, consumers drawing down their savings, and the outlook for the housing market.
BRAD SMITH: US pending home sales fell more than expected during the month of November, with contract signings declining in all four major US regions, according to the latest data from the National Association of Realtors. The group noting that there are about two months of lag time between the mortgage rates and home sales. With mortgage rates falling throughout December, home buying activity should inevitably rebound in the coming months and help economic growth.
Joining us now is Melissa Cohn, William Raveis Mortgage Regional Vice President. Great to have you here with us today. Help us make sense of where we find ourselves right now because as I'm looking through some of the data that even had come out from Redfin and how they were classifying what we've watched over the course of this year, one thing that they did note within that was that, even with the activity that we've seen over the course of this year, there's still, going into next year, so much concern around where home price growth will continue to slow and where we'll actually see some reprieve as well.
MELISSA COHN: Well, it's a combination of where mortgage rates are versus where real estate prices are. I think part of the problem that we've had in the real estate market is that home prices haven't really softened that much. And mortgage rates have continued to climb. Mortgage rates are more than double where they were at the beginning of this year.
And so the consumer's been given sort of no benefit, either with a lower price or a lower mortgage payment. And I think unfortunately, we're probably going to see some of the same again for the next few months until the Fed finally ends its rate hiking cycle.
JULIE HYMAN: So Melissa, if you had to predict, a year from now, where rates would be, do you think we're pretty much in the same boat?
MELISSA COHN: No, I actually believe that we're going to see interest rates coming down. I believe that the Fed and all of-- we've had seven rate hikes so far. We're likely to have two more at the beginning of the next year. And that is impacting the consumer and that the rate of inflation will begin to moderate.
We've also seen that credit card debt has gone up exponentially, meaning that the consumers are starting to run out of all the money that they saved during the pandemic. And that will start to slow the rate of inflation. And when inflation goes down, mortgage rates will go down.
BRIAN SOZZI: Melissa, and for those already in a home, what should they expect in terms of prices next year?
MELISSA COHN: Now, I think that we would be in good shape that if real estate prices remained where they are and didn't really decline-- I mean, there's certainly homes that have been overpriced that will-- prices will decline and bring them back to a more reasonable level.
But sellers today can no longer expect to say, I would like to get the sort of funny money price for my house with the expectation that maybe they would get it. I think that expectations have to become more reasonable. And then hopefully we'll see a stabilization in the real estate market, which will hopefully then bring in more of our Millennials and bring more affordability back to the real estate market.
BRAD SMITH: Within that real estate market too, talk to us a little bit about some of the new homes, because that's where we've seen a significant shakeup in the number of people that-- or households that have been looking to just get into a new home to be construction-- constructed and when that will actually be delivered. There's been a total shake in the confidence there.
MELISSA COHN: Well, and part of the problem is that if you're buying a house that's not going to be ready for the next 10, 12, 18 months and you can't lock into a mortgage rate, you can't really predict where you're going to be financially. So it's very hard to make that sort of commitment today in a new home, where if you buy a home that already exists, you at least know exactly what you're getting into and what to expect over the course of the next few years.
JULIE HYMAN: Melissa, I've got a little anecdotal question for you. And this is actually based on something-- a cousin of mine who is a teacher, and has been for four years, was recently asking people on Facebook. She wants to buy a house. But it's hard to afford a house, especially on a teacher's salary right now.
Given where we are with rates, what are you recommending for people? Should they wait until a year from now? Should they-- are there other things they can take advantage of, even in this environment? What should they do?
MELISSA COHN: So first of all, I always say, you don't look at the actual rate, but you look at what your monthly payment is. When you buy in today's slightly higher-- or not slightly higher, much higher rate environment, you're theoretically getting a better price on that property. When mortgage rates start to come down, real estate prices can start to go back up again, so that if you buy today, consider looking at an adjustable rate.
Do whatever you can to help save on your monthly payment for the next year or two. We have these temporary loan buydowns where you can buy your rate down by 2% or 3% for the first two or three years. It can help to make a home affordable today.
And be prepared to refinance when interest rates do come down. And I'm not saying that this'll be a year from now. But perhaps anywhere from a year to two years from now, there should be a good opportunity to be able to refinance.
JULIE HYMAN: Melissa, great to get your thoughts here in this tricky environment for a lot of people. Melissa Cohn, William Raveis Mortgage Regional Vice President, appreciate it.