Housing economist: ‘If you need a mortgage, get your rate locked in now’

Nest Seekers International Chief Economist Erin Sykes talks the housing market, and why buyers should brace themselves for higher prices this year.

Video Transcript

RACHELLE AKUFFO: Mortgage rates starting to drop after three weeks of increases, according to Freddie Mac. So could that spell new hope for homebuyers? Well, Erin Sykes, Nest Seekers International chief economist, joins us to break some of this down. So, Erin, what should we read into this data? Should people get excited just yet?

ERIN SYKES: No, don't get excited. This is a micro movement within an overall upswing. And I think a lot of times, we equate the Fed funds rate to mortgage rates. But there's actually a lot of other economic influences, as well as individual influences into those rates. So you have everything from inflation, jobless claims. Also, your credit score, how big of a loan you're taking, et cetera.

Also, of course, supply and demand. So the demand for new mortgages and also refinances has been slowing because we've had so much economic uncertainty. And because of that slowing, lenders gave a little bit of a bone and dropped the average rate about 0.2% over the last week. Now that was a short-lived moment. We're now back up to about 6% for the 30-year fixed across the board. So it was really similar to a bear market rally.

SEANA SMITH: Erin, you mentioned supply there. Any improvement that we're seeing just in terms of the number of homes available right now?

ERIN SYKES: Yes, we're up about 19% year over year for the supply in June, which is great because we were in such an extreme seller's market. Now we're really coming back to center. And it's almost amazing to think that you can have a balanced market. So that's where we're approaching. And I'm hoping it stays that way and does not go to the other extreme.

DAVE BRIGGS: Yeah, of course, we're still about half of pre-COVID levels in terms of that inventory. Do you think-- there's talk of crash. There's talk of a correction. What do you see happening in the next three to six months?

ERIN SYKES: So I think a lot of balls are up in the air. I think one thing that we should not necessarily rely on is the forward guidance by the Fed because I think we have been overly reliant on such. And it's been pretty much misleading. They said they were going to raise 25 basis points. They raised 50. They said they were going to raise 50. They raised 75. And you're seeing a lot of people bank 100% on this forward guidance.

So I think, instead, we should look to history. There are no gurus. There are just market cycles. So I think that we're in for a little bit more pain. And I do expect that to last throughout the end of the year, at least. But we'll see where it goes from there.

RACHELLE AKUFFO: I want to ask you about affordability because we saw the median listing price in June hit another record high, $450,000. And the cost of owning a median priced home in the second quarter would require 31.5% of the average US wage. That's the highest since 2007. Are we expecting any hope in terms of the affordability of some of these houses changing?

ERIN SYKES: Not until prices start to decrease. And we see a lag of two to three months from that Fed funds rate hitting to where it really filters out in terms of home prices. So we just start to see the results of that first major hike. And we still have yet to see the 75 basis point hike really impact prices. So hopefully things will come down a bit. We're in for likely another hike, the way things are going right now with inflation. So we'll see impact of lower prices throughout August, September, into October.

And hopefully, we can also see a leveling out of rental prices, because when prices to buy are this high, we have people stuck in the cycle of perpetual renting. And landlords can really take advantage of that. And they will continue to increase the average rents, based on that incredible demand, because people cannot afford that first 20%. They can't afford the higher interest rates. So it is a catch-22.

SEANA SMITH: Yeah, Erin, the rental market is really incredible when you take a look at some of the price increases that we're seeing across the country. What's your reaction to the price jumps that we've seen on a year over year basis? Is this anything like we've seen before?

ERIN SYKES: Well, if you look to some place like Miami that has a 50% increase over last year, and they actually just put into law that you cannot raise prices so dramatically because it's really becoming pinched in South Florida in general. So we have never seen anything like that before. We have seen, really, elevated rents for a long period of time in the major cities like Manhattan. But you have isolated pockets where it really is extreme.

So I think that Miami is settling down. It's leveling out a bit. However, it is extremely impacted by South America and almost runs on its own economic cycle as a result. And with all of the unrest in South America, you see an incredible demand continue for particularly new development in Miami. So I expect that market to stay hot, even if others cool.

DAVE BRIGGS: Yeah, Miami has been painful over the last 12 months. All right, circling back to mortgage rates where we started, how high do you think they'll climb? And because there's so many conflicting data points in the housing market right now, is this one of those times for people to sit it out or to jump right in before mortgage rates potentially climb again?

ERIN SYKES: So a couple of things. I see most buyers sitting on their hands right now. And that's because we don't know where things are going. We're at about 6% as the average 30-year fixed. I think we're going to see 6 and 1/2% by the end of the year. Now, if you are a cash buyer, of course, you're going to have the most opportunity. And I expect that you would wait it out a bit more, wait for those price reductions to come along in August and afterwards, once those rate hikes settle into the impact on prices.

Now, if you do need a mortgage, get a rate locked in now. Basically, you can lock a rate for 30 to 60 days. And that gives you a little bit of time. Maybe you can catch the falling knife with a bit of falling prices, as well as a lower rate lock, and be able to get into the home of your dreams.

SEANA SMITH: Ending there on a positive note. Erin Sykes, Nest Seekers International, thanks so much for joining us.

ERIN SYKES: Thank you.