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Mortgage rates are now above 7% on average nationally

JUANA SUMMERS, HOST:

As if home buyers hadn't been through enough lately, today brought a painful milestone. Mortgage rates are now above 7% on average nationally. It's been 20 years since rates have been that high, and that is pricing out many in the U.S. who just can't afford homeownership right now.

NPR's Chris Arnold is here to talk about where things might go next. Hi, Chris.

CHRIS ARNOLD, BYLINE: Hey, Juana.

SUMMERS: So what sort of an impact are these higher rates having on the housing market?

ARNOLD: Well, it's hitting home buyers really hard. And it's not just the higher rates. I mean, you know, people of a certain age may have told you, you know, I remember when mortgage rates were 7- or 8- or 9% or higher. But the difference this time is that we've just had this massive run-up in prices. I mean, prices are up 30- to 40% in two years during the pandemic. So it's this double whammy - very high prices and one of the biggest increases in mortgage rates ever. I mean, they've gone from 3% at the start of the year to 7%. That's a four-point jump. That adds about a thousand dollars to the monthly payment to buy a typical house, and that's just slammed the brakes on the housing market. I mean, the number of homes getting sold has fallen every month for the past eight months in a row. And it is definitely not a frenzied, overheated housing market anymore.

SUMMERS: Wow. I know you've been talking to a lot of home buyers. What are they telling you?

ARNOLD: Well, it's making a lot of people rethink whether they can afford a house and a lot of families with kids and stuff, too. You know, I've been talking to - Heather Gant is one person. She used to be a Navy diesel mechanic. Her husband's an officer in the Navy. He's on a ship now. And they've agreed to buy a new home that's almost built in Virginia.

HEATHER GANT: He said last night that he hasn't been sleeping thinking about it. This keeps me up every night. And then he just said, we're so screwed. And so then I said, well, then let's just back out.

ARNOLD: And actually, despite all that, now they think they are going to buy the place. But a lot of buyers just can't afford it. And this affects sellers, too, right? I mean, if you've got a mortgage at 3% or less on your current house, fewer people want to sell their house and move. So that's keeping homes off the market. So both ways, it's just slowing things down.

SUMMERS: So, OK, prices are way up, and now mortgage rates are so much higher. Could we be looking forward to a crash in home prices?

ARNOLD: Falling home prices, yes, quite likely. A real crash like in 2007 and -8 - I mean, that's just really unlikely. And here's why, OK? Like, back during the housing bubble, millions of people had subprime mortgages with truly crazy terms. I mean, I remember this. With the payments adjusted higher, they were impossible to afford. And that led to a wave of foreclosures. And we had a glut of homes, way too many homes. Today, it's the opposite. We have a housing shortage, and people have fixed rates, safe mortgages that they can afford.

Here's Joel Kan with the Mortgage Bankers Association. He doesn't think prices are going to drop much at all.

JOEL KAN: Our forecast is for about flat home price growth in '23 and '24. But if you have flat home price growth for the country, you're going to have lots of geographies that are going to see outright declines.

ARNOLD: Some economists see more like a 5- to 10% drop but not really a crash.

SUMMERS: OK. So you've talked about home buyers, but what about realtors, the people who are selling homes? What are they telling you?

ARNOLD: Yeah. I checked back in with a realtor. We talked over the past couple of years - Gabriela Raimander in St. Petersburg, Fla.

GABRIELA RAIMANDER: Now we're seeing a normalcy again. Yes, there are open houses. People are actually going. They're looking at it. The buyers have definitely more of a chance to get a property.

ARNOLD: That's if you can afford the higher rates. Maybe you can bid even a little under the asking price, which is definitely different than the last couple of years.

SUMMERS: NPR's Chris Arnold. Thank you so much.

ARNOLD: Thanks, Juana.

(SOUNDBITE OF KACEY MUSGRAVES SONG, "SLOW BURN") Transcript provided by NPR, Copyright NPR.

NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered, and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.
Kai McNamee
As Senior Business Editor at NPR, Uri Berliner edits and reports on economics, technology and finance. He provides analysis, context and clarity to breaking news and complex issues.
Juana Summers is a political correspondent for NPR covering race, justice and politics. She has covered politics since 2010 for publications including Politico, CNN and The Associated Press. She got her start in public radio at KBIA in Columbia, Mo., and also previously covered Congress for NPR.