U.S. markets closed
  • S&P Futures

    4,273.25
    -7.75 (-0.18%)
     
  • Dow Futures

    33,660.00
    -58.00 (-0.17%)
     
  • Nasdaq Futures

    13,552.25
    -25.50 (-0.19%)
     
  • Russell 2000 Futures

    2,013.20
    -3.70 (-0.18%)
     
  • Crude Oil

    91.77
    -0.32 (-0.35%)
     
  • Gold

    1,816.40
    +0.90 (+0.05%)
     
  • Silver

    20.77
    +0.07 (+0.35%)
     
  • EUR/USD

    1.0263
    -0.0063 (-0.61%)
     
  • 10-Yr Bond

    2.8490
    -0.0390 (-1.35%)
     
  • Vix

    19.53
    -0.67 (-3.32%)
     
  • GBP/USD

    1.2132
    -0.0071 (-0.58%)
     
  • USD/JPY

    133.5090
    +0.5100 (+0.38%)
     
  • BTC-USD

    24,347.74
    -87.93 (-0.36%)
     
  • CMC Crypto 200

    574.64
    +3.36 (+0.59%)
     
  • FTSE 100

    7,500.89
    +34.98 (+0.47%)
     
  • Nikkei 225

    28,546.98
    +727.68 (+2.62%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Mortgage rates expected to 'cycle around new, higher levels' alongside Fed funds rate: Economist

In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Zillow Chief Economist Skylar Olsen outlines the outlook on elevated mortgage rates amid cooling housing markets and Fed interest rate hikes, as well as rising rent prices and the affordability of homebuying.

Video Transcript

[MUSIC PLAYING]

DAVID BRIGGS: Earlier this week, Fed Chair Jerome Powell spoke about a weakened housing sector as the Fed raised rates once again Wednesday. Inflated mortgage rates have cooled buyer demand, pushing the market toward a much-needed rebalancing act. But a new home will still cost you a pretty penny. Buying a new house today means shelling out a mortgage payment 62% higher than a year ago and 46% higher than the start of this year alone.

With more on where we're headed, we're joined by Zillow Chief Economist Skylar Olsen. Skylar, nice to see you. How do you expect this second straight 75-point hike will impact the housing market?

SKYLAR OLSEN: Moving forward, and we're thinking about mortgage rates' impact on housing markets the most when we're thinking about the Fed activity, you know, I think it's reasonable to assume that mortgage rates are going to bounce around 5 and 1/2% moving forward. After the Fed made their announcement and lifted the Fed funds rate again, we actually saw mortgage rates trend down.

Now, a reason for that is the flight to safety that comes when we start experiencing heightened levels of recession risk. I think that was the market's response, in many ways, to what the chairman said in that announcement is that we would go through a period of slower-than-normal growth moving forward. That flight to safety put downward pressure on mortgage rates despite the Fed's action to otherwise lift the Fed's fund rate. So moving forward, I would expect mortgage rates to continue to cycle around this new higher level.

RACHELLE AKUFFO: So Skylar, what sort of domino effect does that have, then, on rental properties and rent?

SKYLAR OLSEN: Right. So as the challenges for home buyers start to increase at this higher interest rate environment, we will see more people remain in rental markets for longer. They'll have to save up or downsize expectations in order to access home ownership with a lower debt load in order to avoid the impact of higher rates. And so that means you rent for longer.

A lot of the challenges for home buying is one of the reasons that we saw home price growth-- or rather-- excuse me-- rental growth in single family markets so aggressively, right, so strong over the course of the pandemic was much because there weren't enough options in the for-sale market. So yeah, rental markets moving forward will continue to experience strong demand. Though we do see early stages of rent slowing down from maybe the high highs, I think moving forward, we still expect a lot of pressure in that market.

SEANA SMITH: Yeah, Skylar, we have that figure up on the screen right now. Rents are passing $2,000 for the first time, according to--

SKYLAR OLSEN: Right.

SEANA SMITH: --your data. When we're comparing renting versus buying, how does a typical monthly rent stack up right now to a mortgage payment?

SKYLAR OLSEN: Because of higher mortgage rates, this is probably one of the first times, not necessarily this month but just, I mean, over the last few months, where it wasn't guaranteed that your mortgage payment would be lower than what you could otherwise rent it for. In different Metropolitan areas across the country, whether or not the typical mortgage payment or the typical rental payment, if you're matching up the same kind of home, right, so similar single family housing, that kind of thing, where one is higher than the other, it absolutely depends on where you are in the country, but it's starting to get close.

You know, that mortgage payment now takes up 30% of your income because we're at this higher interest rate level, and we haven't seen that since 2006. So these two options are balancing out from where they were in an extreme low interest rate environment.

DAVID BRIGGS: And if you're one of the millions that were forced to the sideline over the last two years, you're seeing mortgage rates creep up, but you're seeing prices come a little bit down. Is this a time to buy or continue to wait this one out?

SKYLAR OLSEN: You know, whenever you're thinking about buying your home and you're thinking about timing it, any expert should be advising you not to try and time the market. Predicting mortgage rates into the future is not something anyone can do, right. It's an uncertain practice over the next six months.

The way that you should be thinking about it as an individual is to be watching the homes that are available to you that you can afford. Try and make sure that any home that you do move on is one that's going to match not just the you now, but the you into the future because finding a property, buying that home, and turning home ownership into, say, a financial advantage is much more possible if you plan on staying. And that has to do with large upfront costs, but it also has to do with different advantages that mortgage home ownership offers, like leverage, but that was impacted by higher rates.

So that period of time where you're expecting stability might be a little bit longer. But that's the thing about home buyers. They tend to be the kind of household that is moving for that reason. So we still expect a lot of people to be interested. But when shopping, when is the right time? Well, it's when you find the house that's going to work for you, and you can afford it, and you would be confident you'd stay over an extended period of time.

RACHELLE AKUFFO: And in terms of the distribution of some of these homeowners-- obviously, we saw a lot of people perhaps moving to the suburbs, trying to get a bit more space during the pandemic, but what are you seeing in terms of, say, the luxury market versus, say, lower-priced homes and the shifts you're seeing there?

SKYLAR OLSEN: Yeah. We did a recent analysis to try and look at whether or not the slowdown was much faster in one segment of the market. As we're at the-- kind of the transition point, maybe that's why we're not seeing anything really good and truly jump out. And maybe we'll start to see more obvious trends in the months to come. But just looking and applying intuition from economics onto the situation, there is a lot of pressure on affordable homes.

So on the lower segment of the market, you might not expect it to slow down as much. Higher-end buyers also tend to be more financially sophisticated. And while their affordability might be-- not be as impacted by interest rates, their financial decision making might be, right, the advantages, the leverages are less, things like that. So transitioning forward, we definitely are seeing new construction and the demand for new construction falling much faster, and that does tend to be in a higher price point. Luxury homes always take a long time to sell, so it's a harder time-- it's harder to see movements as much in that market.

SEANA SMITH: Skylar Olsen, always great to have you, Zillow Chief Economist. Have a great weekend.