The recent Fed rate hike is leaving investors wondering if higher mortgage rates will tip the housing market into a recession. Mark Hamrick, Senior Economic Analyst at Bankrate.com, joined Cheddar News to explain.

The recent Fed rate hike is leaving investors wondering if higher mortgage rates will tip the housing market into a recession. Mark Hamrick, senior economic analyst at Bankrate.com, joined Cheddar News to explain. “The upside of that is that now prospective homebuyers, leaving the mortgage challenge aside, are getting more of the power put in their side of the equation, and sellers are having to give some of that up and we need to have home buyers to have some power at the negotiating table as well,” he said.

How the Fed Rate Hike Could Impact U.S. Housing Market

Well, the once red hot US housing market starting to cool according to multiple data coming out this week. Today, Freddie Mac saying in its latest weekly survey that the 30 year mortgage rate is averaging at 6.3% the highest level in 14 years. Meanwhile, US existing home sales dropped for 1/7 straight month. In august slipping 4, 10 Of a percent to a seasonally adjusted annual rate of 4.8 million units last month, while the media existing home price increasing about 8% from the same time a year ago to $389,000. But home prices in August were down about 6% from their peak in June, the biggest tube a drop in prices in nearly a decade. So joining me now is Mark Hamrick, senior economic analyst at Bankrate dot com markets good to see you a lot of data out this week. Of course, huge Fed decision and outlook as well. How is this going to impact the housing market? Well, one thing about the housing market, good to see you, kristen is that investors, in a sense, they're anticipate what the Federal Reserve is doing. And let's think about the fact that the Fed has been raising rates now since March. And obviously at a quickening pace with this sort of stair stepping from 25 basis points to the last three of 75 basis points. As a result, we've had eggs Existing home sales falling for seven straight months and that's probably going to be the pattern we're going to see for a while because housing affordability has been dealt a very significant blow by the steep increase in mortgage interest rates, which 30 year fixed, stood at above 3% earlier this year. And as you noted with the slide there on the screen now above 6%. So if we do the math, looking at a median priced home, the difference between what we would have had earlier in the year and now, including a 20% down payment is about 33% higher. That's quite a huge leap. And it means that a given buyer needs to commit about 7% more of their media and household income to buying a home than they would have a year ago. So what should americans do mark? I mean when they're weighing affordability between renting, which is also sky high and in some cases, many cases unaffordable. Should they consider renting or buying a home? How do they make this work? Well, I begin with the proviso, your results may vary because everybody's gonna have an individual situation with respect to their household finances, but listen, there's no return on rent. Right. And you have very little predictability with the future path of rents. We did see rents collapse in many cases, at least in in some locations around the country at the beginning of the pandemic, but they essentially made that up in the time that has since commenced. So I think, you know, first of all This housing affordability challenge is very, very significant. And it's not only the fact that you have to be able to afford the monthly payments, you've got to have the down payment. And I think for somebody who is essentially committed to being in a home or let's say 5 to 10 years, this current situation is going to resolve itself in some way. Even if we see a flattening in home prices in the near term, the longer-term trend will re establish itself. But I would be cautious in any case, but no one is gonna love the year over year increases in rents that are being essentially requested across the country right now. Right. So I do want to ask, in terms of home prices, Mark, we've started to see home prices cool a little bit. But of course that's because mortgage rates are rising and so there's not as much demand per se as before, inventory has always been a problem. Right? Even pre pandemic, There simply were not enough homes on the market. Are you at the pandemic, workforce shortages, supply chain shortages, parts shortages. And it really tightened the inventory even more. What's your outlook in terms of home prices? Knowing that mortgage rates are a factor. But of course, so is the inventory on the market? Yeah. Well, first of all, the outside increases in home prices rising at a rate above income, simply unsustainable. And so I go back to some comments that Chairman Powell has made at a couple of his past news conferences, including in response to a question that I asked him I think two news conferences ago where basically he referred in a sense to what you were just talking about and that was the behavior of the housing market during the pandemic was abnormal. And what we're getting now is more of a reset to something that is more normal. The upside of that is that now prospective homebuyers leaving the mortgage challenge aside, are getting more of the power put in their side of the equation, and sellers are having to give some of that up and we need to have home buyers to have some power at the negotiating table as well. So I think it's reasonable to expect. We see a cooling in home price gains that's going to be very location specific, but longer term we should still expect home price appreciation because most people would like to own a home. Yes, that is. I think the ultimate american dream right now, considering the situation that we're in economically. Mark Hamrick, senior economic analyst at Bankrate dot com. Mark, thank you