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Mortgage rates: First-time homebuyers 'may have a challenging time' in 2022

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Realtor.com Economic Research Manager George Ratiu joins Yahoo Finance Live to discuss mortgage rate price forecasts, the Fed's rate hikes, and real estate trends.

Video Transcript

EMILY MCCORMICK: The average 30-year fixed-rate mortgage jumped to its highest level since March 2020 this past week, reaching 3.45%. As rates rise, our next guest joins us to help make sense of where we may heading-- be heading in this housing market. And George Ratiu is realtor.com economic research manager.

George, thank you so much for joining us. And as I mentioned, we have seen this rise in mortgage rates that's tracked the jump in the benchmark 10-year Treasury yield. How much further do you see mortgage rates rising this year?

GEORGE RATIU: Well, Emily, we are forecasting mortgage rates to reach 3.6% by December, at least as of our December forecast, right? So we're seeing mortgage rates are really making solid gains based on, to your point, the 10-year Treasury. We are seeing the Federal Reserve also pull back its massive support of the mortgage market, particularly considering that the Fed had been purchasing about $40 billion a month worth of mortgage-backed securities until about November.

And the central bank has sped up its tapering. And in addition, markets are also expecting the bank to make tweaks to its overnight rate, which will have a trickle-down effect all the way onto the bank's willingness to extend loans. So I think, in essence, mortgage rates are likely to continue rising. It's worth noting mortgage rates tend to be somewhat volatile, so I'm sure we're going to see some retrenchment from maybe the current rate and then another push towards a new level. Looking historically, however, I'll note that, yes the ultra-low mortgage rates might be behind us, but we're simply moving into the low mortgage rate territory, if you look at the '90s, the '80s, even the 2000s.

ADAM SHAPIRO: Yeah, George, I-- when you say the low mortgage rate, I can remember having a mortgage at about 4 and 1/4%, thinking back in the day, whoa, this is pretty good. What's the real impact, though, on house price acceleration? Because there's still great demand and very limited supply.

GEORGE RATIU: Great question, Adam, and I think there, the-- the truth is, we are seeing prices beginning to moderate the stratospheric pace that they sustained in 2021, where as of December, our listings data showed that prices were up 10%. That is pretty solid. However, when you look back to March, April of this last year, prices were up 17%, 18% year over year. So we're beginning to see a moderation in price growth.

Looking ahead at the rest of the year, I do see that an improvement in the supply, both new construction as well as existing, is going to temper a lot of the price growth. So that's really good news for buyers. They are going to see more options and more approachable prices. And to your point about mortgage rates, I do see mortgage rates tamp down some of the demand. The millennial wave is not going anywhere, so that's going to be with us. But some first-time buyers might have a challenging time qualifying for a mortgage as rates increase.

EMILY MCCORMICK: Well, and to that point, how do you expect consumers to really respond to this rising rate environment for mortgages? Like, do you expect that we may see a near-term jump in home buying as people try to get ahead of the Fed's interest rate hikes, or do you think that opportunity has already passed?

GEORGE RATIU: Emily, I see that already in the data. In fact, we're in the middle of winter, as it were, and the market is a lot more active than historically has been the case. So to your point, I already see consumers responding to that. Today's buyers are hyperaware of what's happening in the mortgage markets, so they're already pushing hard to find their right home while rates are still low.

Looking forward, I think we'll have a couple of factors to look at when it comes to consumers. One, there'll be the psychological one. As Adam mentioned earlier, right, if you have a mortgage at 2.7%, 2.5% for some people, there's a serious psychological threshold to overcome to say, well, you know, mortgage rates at 3.5%, that's-- that's a lot.

The other one, of course, is financial. It really will make a difference whether people's incomes and wages keep up with these mortgage rate increases. If we see a significant increase in wages, which a lot of companies are contemplating right now, that might compensate for some of the higher mortgage rates. Otherwise, for a lot of people, it might mean postponing that purchase by a few months.

ADAM SHAPIRO: Is there a way to-- if you've got a very good credit rating and you're trying to negotiate the mortgage, to use that as leverage to get a lower rate? Is there terminology or language you should use to pressure the other side, the bank or the lending institution?

GEORGE RATIU: That's a great question, Adam. And here, I would like to point out that what we're seeing, 3.45%, are really averages. A lot of lenders, depending on what market they're active in and what credit score their customers have, might offer below that. So to your point, I think for consumers, the best advice I would, you know, give is, contact multiple lenders. Don't restrict yourself to one or two. Maybe talk to three or five because many times within a competitive market, some lenders will be willing to make concessions, particularly to borrowers with excellent credit scores.