U.S. mortgage rates saw their highest surge in over three decades following the Federal Reserve's 75 basis point rate hike, making buying a home even more expensive. Erin Sykes, Chief Economist, Nest Seekers International, joined Cheddar's Opening Bell to discuss the state of the real estate market and when prices could begin to fall.


Opening Bell

Mortgage Rates See Highest Surge in 35 Years Following Interest Rate Hike

joining us now is an expert insight is erin Sykes, chief economist, nest seekers International, erin, welcome to the show. You and I were having a conversation during commercial. It's so fascinating what's going on with real estate right now. You know, it's been a hot button issue as prices continue to rise nationwide. What's your overall look on real estate right now? So the real estate market cycles in about every 18 years, we see a slight cooling. Now the variability of that cooling is, you know, anywhere from a crash to just a slight pullback. So right now, the question is, are we going to see a slight pullback or a more dramatic one? The demand is still there. People really want to either buy their first home or trade into a more full time residence or by that second or third vacation home. So we're working with those two variables with interest rates on the rise, these home loans are only getting more expensive. What advice do you have for the prospective home buyer right now? Well, the home buyer really cares about what their monthly payments are going to be. So that interplay between what their rate is and what the price of the home is. And we have seen rates obviously increase. Um, right now we're about 6% for a 30 year fixed. However, we see a lag in between when the Fed raises rates and when prices actually come down. So we're just starting to see the impact of that last half a basis point hike. The 75 basis point hike. We're going to see in two or three months probably in august, so I expect to see prices continue to cool at least through august and then we're gonna see some variability and of course, um coming into midterm elections, we're going to see some other changes. So brace yourself for that. So to that point, would you recommend buying in this current environment or do you think that consumers should wait it out? Well, there are always deals and it's finding the deals within a hot market or a cool market. So make sure that your pricing in for all of the different expenses that you have for a house and this really goes into the interplay between should I rent or should I buy? So if you're looking to stay in a home for more than five years, you should buy. Um if you're looking to um rent, you might see some prices that you haven't seen in markets before. Like here in New York, it's super hot rental market right now. It's over $4,000 a month for the average one bedroom in the city. So in that case, Take a glance at what it would cost to buy even if it's just a studio, but at least you're on more of a fixed savings plan and building equity. I'm so glad you mentioned rent prices because they've skyrocketed to your point, the median asking rent prices up 15% from a year ago, you mentioned $4,000 for a one bedroom. Are we reaching a point where those lower income earners are just being completely shut out. It's very difficult, especially in places like New York for someone to save the initial 20% they need to purchase um if they're buying a home in an inflationary environment or to pay these higher rent because landlords are capitalizing on the fact that people can't pay that initial 20% because of all of the other expenses in their life right now. So that's why we're seeing people move outside of the cities, into the suburbs, into other areas of the country that haven't been as hot um recently and also into areas where you have tax advantages like florida and Connecticut, so it's, it's really um, a play on the potential to work remotely if you can work remotely and you can live in someplace less expensive. That might be the best solution. Many analysts and big banks are also predicting a recession, what kind of effect would that have on real estate. I think we're likely already in every session, but the way that that real estate works, of course there's a macro view and you know, across the, across the board prices are up that 15% as you mentioned, however, you also have to drill down into each of the micro markets and I think that there are certain markets that will be resilient, especially the luxury market because um, most of those individuals that are highly invested in the stock market, high net worth individuals, they did see the writing on the wall and thus they moved a lot of money out of equities and into real estate as a store of value going into this bumpy times. So we do see resilience and and pretty much prices stabilizing in that luxury market, but then Where it's going to take more of a toll is $2 million. And below first time home buyers, those who are, who need a mortgage in order to purchase at net seekers nest seekers, you actually do specialize in ultra luxury properties. What are some of the trends you're seeing amenities? Everybody especially, you know via the pandemic and then spending more time at home, building out beautiful home offices and home tv studios and pools and indoor outdoor living gyms, all of those types of things that the ultra high net worth individual wants a true compound. I'm sure the pandemic played a huge role in that. Yes, exactly. I mean there's always been discerning taste and you know, you always want with somebody can't have. So that exacerbated by the pandemic really drove home these amenities and it's not just in houses, it's also in condos and if we look at Miami where some of the most extraordinary high rise condos are being built right now. You have everything from dog grooming stations to um to complete spas that are only available to residents, you have hotel amenities because you have places like the Waldorf Astoria where it's the 1st 30 floors of the hotel, the next 70 floors as residents and they can intermingle, you get multiple restaurants, you really don't ever have to leave if you don't want to. I love that lifestyle, that is the lifestyle. Where do you see real estate, the future of real estate in 2020 23 beyond Aaron? I think that rates are going to actually come back down, come closer to the presidential elections. So we're gonna try to clear out all of this chaos um within the next year and a half or so and then we're gonna see rates probably pull back and I think there's gonna be in between now and then there's some real buying opportunities, especially if you have cash, especially if you're a first time home buyer who has been priced out of the market, it's really time to get ready and make a intelligent decision while others are are scattered and when there's opportunity and chaos in the market, that's why we have you on the show. Fantastic insight. Thank you so much. Erin Sykes, Chief economist, nest seekers, International