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Mortgage rates soaring following first Fed rate hike

William Raveis Mortgage Regional VP Melissa Cohn joins Yahoo Finance Live to discuss how rising mortgage rates are impacting home prices.

Video Transcript

- Welcome back. Adding to the woes of US homebuyers, now mortgage rates are surging along with housing prices. So could this cool that hot housing market? Are we in the midst of a housing bubble, as some have suggested? Melissa Cohn is the regional vice president for William Raveis Mortgage, and she joins us now. Melissa, nice to see you. Let's first put this in terms of how Americans are feeling this. How much more are they paying on their monthly mortgage? MELISSA COHN: Well, an interesting statistic is that the monthly mortgage payment is probably 25% greater today than it was a year ago. So there's, obviously, a significant increase in monthly payments, and therefore, that limits some people's ability to get that mortgage. But historically, rates are still not as high as they have been for decades. - How high do you believe they'll climb? MELISSA COHN: I mean, there are certain cases where we price out loans today, and we see the actual interest rate going above 5%. So will rates go much above 5.5%, 6%? I certainly hope not. If you go back 20 years ago, the average rate of a mortgage was at 6.75%. I was asking a group of realtors the other day if they remember doing business in the year 2002, 20 years ago, and did interest rates impact their business, and they all said no. So the reality is, is the rates continue to climb, but people still need a place to live, and people are still buying. - Difference is now, as you well know, housing prices are through the roof. People are paying six figures over asking, all cash. People are being priced out of this market. The price has surged 19% in 2021 alone. Do you think this time rising mortgage rates will impact demand? MELISSA COHN: I don't, actually, because there's still not enough inventory in order to dampen the demand. We still have many more buyers than we have properties to sell. So as a result, maybe there were 20 people for every house that went on the market, and now perhaps, there are 15 or 10, but that's still more than one buyer for every property on the market. - Yeah, the inventory is the devastating issue for homebuyers. Why haven't we seen a pick up? Why aren't homebuilders building more? MELISSA COHN: Well, I mean, first of all, we've had all sorts of supply chain issues over the course of the past year, and I think builders are building as they can. But with the rising cost of real estate, now, I think some investors don't feel that they're making enough money. There's not enough spread in it for them. The cost of buying the property is too expensive. The cost to build it is too expensive. So it's not necessarily worth their while to go out and build more homes. Also, we have a lot of people who are afraid to sell. If you are selling in a high-price environment, that's great. But then if you have to buy, you have to buy high as well. - We've talked about that in my house. We'd love to sell, but where are we going to go? Some Melissa, have suggested that we're in the midst of a housing bubble. I want to quote from a blog post from the "Dallas Fed," which said, quote, "Prices appear increasingly out of step with fundamentals." In your estimation, is this a bubble? MELISSA COHN: No, I don't really think we're in a bubble at all. We've gone through the pandemic, and now as we come out of the pandemic, people reflect upon where they want to live, how they want to live, do they work at home, do they need different space. And I think that we're in the middle of a sea change of where we live and how much space we need. And until we get through that and we reestablished a new norm, we're definitely not in a bubble. - What's your advice for homebuyers right now? MELISSA COHN: That people should go out and buy the house that they want to buy and not focus on the mortgage rates. People can take an adjustable rate mortgage in order to get a lower rate, a lower payment. They can take an interest-only loan. Mortgages can be refinanced. If you buy the wrong house, it's a much more expensive proposition to get out of that. - I want to ask you about refis. How is that industry going to be hit by these mortgage rates? MELISSA COHN: Well, obviously, in a higher rate environment, people that are pure rate surfers are not going to be refinancing. But there are plenty of people who will continue to take equity out of their homes, especially if they feel that the value of their home has peaked, taking cash out to pay off other debt for educational purposes, to do home improvements. There are a lot of people who are doing home improvements, staying in their homes and wanting to expand them or improve them, do a new kitchen, new bathrooms, so plenty of reasons for people to be refinancing. Thank God. - Yeah. And when do you see we'll see some flattening out of this housing market? Is in the next six months, next year? MELISSA COHN: No, I think that we definitely will go through the end of the year at this torrid pace still. What happens next year, I think will have a lot to do with where rates end up going to, what goes on in the world with the war in Ukraine. There are so many external factors at play that it's really hard to predict more than the next day, at this point. - Regional vice president for William Raveis Mortgage, Melissa Cohn. Appreciate your analysis and thoughts today. Thank you.