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Housing: Mortgage rates drop below 5% for first time in 4 months

Yahoo Finance's Brian Cheung and Dave Briggs discuss the dip in mortgage rates and housing affordability.

Video Transcript

[MUSIC PLAYING]

- Let's touch on the housing sector now, where for the first time since April, mortgage rates have fallen below 5%, down considerably from north of 5.8%. But it's all relative with mortgage rates dramatically higher than the 2.77 we saw this time last year. Brian, typically, we see mortgage rates rise incrementally with Fed moves. Why is that not necessarily the case at the moment?

- Well, I mean, it could be because the housing market has already priced in where the Fed is going to end its rate hikes. It doesn't mean that the Fed has to be done right now with that for mortgage rates to peak. But I will say it's not necessarily the case that when you see a 30-year fixed mortgage rate below 5%, that Fed officials would say, markets actually are getting our message here. And maybe that's why you see the flurry of Fed officials going out there with a little bit of a hawkish tone here, saying, hey, by the way, we're not done here yet.

But again, we've already seen some steam get taken out of the housing market when you take a look at housing starts and then even home prices in some regions of the country. But look, by and large, it is still a very hot housing market. And you do wonder if the decline over the past few weeks could actually add more fuel to that housing market.

- Yeah, it's really interesting. Again, it is all relative, to your point. New and existing home sales have dropped several months in a row. But the number that really told me the most-- it was just a couple of days ago when Black Knight released data showing that price growth has a record drop from 19.3% to 17.3%. Now, the headlines read record drop in growth. But then you step back from that headline, Brian, and you say prices grew 17%, which is still an astronomical rise. At best, I think we're looking at a cooling and eventually maybe a flattening, nothing like the crash some want to predict.

- And that's the thing. You have a lot of millennials that are kind of thinking, well, if this recession happens, now is going to be the time for me to go in and buy a home. The bad news here is that might not ever happen. Certainly, the housing market is cooling. But to your point, you're not going to see a substantial fall in prices that might make it all that attractive or even affordable to get a home.

- Right. But the good news, as we just mentioned, is if mortgage rates are going to continue to come down, inventory is going up, albeit slowly.

- Depending on what market you're in.

- And prices are no longer going up. So the conditions are not going to get worse if you were forced onto the sidelines during the pandemic, which millions were. Maybe the conditions in the next six months are improving for you as a potential homebuyer.

- Right.