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Mortgage rates could approach 5% over the next few weeks, diminishing affordability further for a greater number of potential home buyers this spring.
For first-time home buyers, the costs of buying the same home this year compared to one year ago have increased by 40% due to higher home prices and higher mortgage rates, says Lawrence Yun, chief economist of the National Association of REALTORS®.
Despite recent job gains, which tend to propel the housing market forward, many uncertainties in the economy and rising prices could hamper home sales moving forward. Inflation is running high at 7.9%. Mortgage rates are expected to rise further as the Federal Reserve moves to tame its short-term interest rates.
“There will be an inevitable slowdown in home sales,” Yun says in a recent statement about jobs and the economy. “Keep an eye on days-on-market and a decrease in multiple offers. Home sellers should not expect big, easy profit gains.”
While a slowdown may be on the horizon, housing is likely to remain in demand. Rising mortgage rates may prompt some buyers to back off, but they could open buying opportunities for those who have been waiting for the competitive market to slow.
“Everyone should embrace higher rates to cool off this madness and hope inventory rises,” Logan Mohtashami, lead analyst at HousingWire, told Fortune. “Let higher rates do their thing.”
Housing analysts note to Fortune that rising mortgage rates could help rein in the more recent unsustainable home price growth.