As mortgage rates hit levels not seen since the 2008 recession, the housing market is starting to cool.
According to Fox Business, the average home is now selling for less than its list price. Real estate company Redfin said another housing financial crisis is unlikely.
Mortgage rates are now above 6 percent for the first time in 14 years, according to The New York Times.
“This is the sharpest turn in the housing market since the housing market crash in 2008,” said Daryl Fairweather, chief economist for Redfin.
“We haven’t seen interest rates this high since 2008, 2007, so it is a big change from the housing market we’ve all gotten used to,” Fairweather said.
Inflation and the fear it engenders are driving the hike in mortgage rates.
“Mortgage rates have gone up four weeks in a row because of investors’ concerns about inflation,” said Holden Lewis, a home and mortgage expert at NerdWallet, according to The Washington Post.
“Their worries are warranted, as we learned this week that inflation ran hotter than expected in August, as reflected in the consumer price index. That news boosted mortgage rates higher — a phenomenon that will be reflected in next week’s rates,” Lewis said.
The average for a 30-year fixed interest rate mortgage was 3.22 percent at the start of the year. It is now 6.02 percent.
Higher rates mean that monthly mortgage payments are up about 40 percent from a year ago.
“Buyers just don’t have the 40 percent extra money to put towards housing every month,” Fairweather said. “A lot of homebuyers had to drop out and go to the rental market instead or choose not to buy that second home or investment property.”
Reflecting this, mortgage applications are down.
Selma Hepp, lead economist at CoreLogic, a real estate data mining firm, said home sales are down 13 percent to date for the year, according to the Times.
In an interview with the website The Escape Home, Fairweather said the future of the housing market “really depends on the course of the economy.”
“If inflation is persistent and the Fed has to continue to raise interest rates to fight it even more than they’re planning now, then interest rates will go up and the housing market will suffer, Fairweather said.
“If we have a severe recession then I think the housing market could see prices decline by 5 percent.”
Fairweather told Fox Business the outlook for the housing market is not all doom and gloom.
“If you find a house that meets all your needs and you’re going to stay in it for at least five years, it’s still a great time to buy,” he said.
This article appeared originally on The Western Journal.