U.S. mortgage interest rates jump to 6.52%, highest since mid-2008

Economists need to figure out how people are buying these expensive houses. I work in big tech and probably in 1-2% and I am still priced out of market even outside of CA. How do other people not in big tech do it? My guess is that most people buying houses are double-income families which wasn't the case in 1980s. Note to self: If you want Ameican dream, make sure you marry someone who makes as good income as you :).

Yeah, people price housing in terms of the monthly payment, not the dollar amount so much... higher interest rates mean people can afford less principal. And mortgage rates have doubled in less than a year.

(of course, in practice, once they've bought, people tend to be averse to their "investment" losing 20% or 30%, even if they did lock in a good interest rate they'll be paying for years to make up the fall. this has always been one of the giant gotchas with keeping interest rates so eternally low... also the cost of financing the national debt just zoomed up too.)

> Today's median home is selling for $440,000

Not for long.

Hasn't square footage also trended up? That's why you use something like the Case-Shiller index to chart housing prices. I know those components go into it and perhaps others.

Inflation at work.

> I have no idea who is buying houses at these prices, if it's not Blackwater-type firms.

US housing at 2% 15-year fixed is the biggest handout the world has ever seen. That's why Blackrock-type firms GOBBLED up real estate.

They were the first ones to back out when interest rates started going up.

They're not the ones buying.

I'm guessing the people who are buying are either 1) completely desperate, 2) oblivious, or 3) are willing to bet they'll have a chance to refinance at a much lower rate within a year or two and don't mind the extra carry-cost until then.

Minor correction, but you probably mean Blackrock-type firms. Blackwater was a private military company.

I think it's a confluence of a few things...

1) You lock your mortgage rate for 90 days, so 90 days ago rates were significantly lower. These will be rolling off soon and by early next year the prevailing rates will obviously be much higher.

2) People are paying points up front to buy down the interest rate.

3) Jumbo mortgages are still much cheaper than conforming (I think a full point).

Give it time.

People with adjustable rates haven't been adjusted yet. People that locked in rates at the lows are just fine. Only some small percent of people with mortgages would be affected right now, and optimistic people that think they can pay the rates have a few months before they realize their budget didn't fit. The cash buyers have slowed down. Just not a flood of foreclosures yet.

I don't expect prices to drop much because they are based on the assumption that interest rates will drop and new homeowners can refinance later. We see that with the inverted Treasury yield curve where long term interest rates are projected to be lower than today's rates. Also, with current homeowners locked into their low rates, there will be a shortage of houses on the market (you can't take your low mortgage rate to a new house). So the people buying now will be buyers that absolutely need to and/or buyers with lots of cash that expect to refinance later. The only people selling now are people that absolutely need to.

The economics of housing are weird. Someone who bought the 1MM house at 2.5% still has a payment based on 2.5%. This individual's house might be nominally underwater, but they are still comfortably making payments. If they were to move, then they would lose both the downpayment and their monthly payment would increase. So the best bet for them is to stay put. However this might mean that they put the house up for sale, and let it stay for sale for the next 2 years.

It's likely that most people willing to pay $5,000 a month to get a million dollar house are at least able to pay an additional $800 a month. They may not like it, but people in million dollar houses can usually find a grand a month extra if they really need to. Buyers already at the absolute upper edge of their possible budget are a non-zero proportion of total buyers, but not a large enough proportion to force prices to drop, at least not yet, at least not at that already lofty price range. Price elasticity of demand is likely greater at lower prices, where the buyers don't have much in the way of reserves and excess income.

Where do you live? I live in Santa Barbara, a notoriously expensive area, and our housing prices are dropping / housing on market for way longer. Not that it's a fantastic barometer but the monthly email from Zillow for our zip-code usually forecasts some outrageous 1yr growth figure (ex. forecasted increase of 15%) and yesterday the monthly email predicts a 1yr housing price decline of ~2%. Things move slowly in large assets. Hell, the dot com bubble and 08' housing crash both took over 2 years to unwind.

> I have no idea who is buying houses at these prices

Only the most richest parts of the US have homes that start at $1m. And only a fraction of the people rich enough to live there can afford to purchase.

Can't you buy now at high APR and then refinance later? I would think these large rates would not last more than 2-3 years. You will take some hit for short period but also might get better deal as there are not a lot of buyers. After rates come down, you might easily end up paying 5-10% over asking price. Is there any issues in refinancing later?

If there is a chance you will want to move in the next 10 years, then the numbers are even worse! Not only are you paying more every month with higher rates, but the amortization schedule is not in your favor. For your hypothetical $1M house and a 6->7% rate change you build about 20% less equity each year also.

Or to make up for the $834/month, you need another ~$25k of pre-tax income if you follow a 40% rule, ~$30k for 33%, or ~$50k for 20%.

"That is NOT happening around here." Yet

I make a 90th percentile income, and I cannot afford the median (or mean) US home price. Something is seriously wrong.

Mortgage news daily is not a very accurate source

BankRate is saying 6.86% for today.

https://www.bankrate.com/mortgages/mortgage-rates/

Zillow is saying 6.54% (actually down 6 basis points, though still up 39bps from last week). Zillow does break things down into categories more with Jumbo loans having a lower than average rate at 6.36% while FHA loans are at 7.05%.

https://www.zillow.com/mortgage-rates/

It's hard to estimate what the average loan rate is (or really anything in the real world where you don't have complete data). What's the average price of a gallon of milk in your city? I mean, it sounds like a simple question, but quickly becomes complicated. There are 5 supermarkets in my city. Do I just look at the price at each of them and take the mean? Do I weight the prices based on which supermarkets are more popular? Do I only take the lowest price of a gallon of milk at the supermarket or do I average in the prices of brand-name and specialty milk? Should I also include milk prices from bodegas in my average? Should I include the milk price from Instacart where they're adding their own markup?

With the average mortgage rates, is this the average rate for mortgages with zero points or the average rate that buyers are getting with some deciding to pay points? For those who don't know what points are: you sometimes have the option to pay an upfront fee for a lower rate. Each point is 1% of the loan value. If your loan is for $1M and you pay 2 points, you're paying $20,000 upfront to get a lower rate.

For example, when I look at mortgage rates on BofA's website (https://www.bankofamerica.com/mortgage/mortgage-rates/) for a $500k home with 20% down ($400k loan), they pop up 6.625% (6.787% APR) with 0.865 points which would be an upfront cost of $3,460. Their calculator doesn't say how much the rate would be worse without points, but maybe they do if you're actually applying for a loan (or maybe they don't give you a choice).

Beyond points, there's so much difficulty in knowing what average rates are. Do you look at each lender and just average the rates or do you weigh rates from BofA higher because they're writing a lot more loans than smaller lenders? Do you even really know?

Also, since you posted (and since I started writing this comment), Mortgage News Daily has adjusted their estimate down to 6.82%.

I think one thing we can certainly say is that mortgage rates have been pushed quite high and the average is likely in the 6.5%-7% range at the moment. Yes, that is a reasonably broad range, but it's certainly a contrast from the sub-4% and even sub-3% rates we had seen.

programming/scripting skills came in really handy when evaluating mortgages and things of that ilk.

I'm not sure I could have done the same using Excel, and software doesn't seem to exist to make these calculations easy to understand.

That's to say: Thanks! We need this.

Here's my real life example:

I bought a house in 2009 @ 3.75% for 480k fixer-upper 1922 craftsman home in East Los Angeles area. My monthly payment was about $3200 because I could only afford ~4% down so we had to get PMI. At the time I made $110,000 and wife made $60,000. We put in about 50k into the house using my dad who is a general contractor (basically only paid for materials).

In Dec of 2021, we refinanced for 2.75% and our fixer-upper was valued at 750k which meant we could get rid of PMI and now our monthly payment is $2500 (including taxes). It's a massive drop for us now that we have a baby.

Literally none of this is possible right now. It feels like we've won the lottery. On top of that, we had a ton of help making this place a home because of my dad. For most families in the major metro areas, this is just totally out of reach now.

The market does not work that way. You're implying that the cause and effect are backwards. It is local wages that set the price! The prices, while they do adjust slowly due to high friction in the housing market, are not exogenous.

That 40% rule seems nuts. Who is making $65k that can truly afford a $500k house?

My wife and I have been waiting for this for a few years now. We live in a college town in the South and the prices here are fairly delusional. I imagine this will allow for some market correction and we’ll be able to get into a bigger home.

In California property tax is also fixed based off purchase price (thanks Prop 13, love it or hate it) so one could pay ~1% on 1M at 7% vs 1.5M at 3% and then simply refinance the 7% later.

This assumes you'd anticipate rate cuts in the near-ish future. This property tax arbitration could easily go wrong.

I mean, sure, but if rates stay this high for even a year and half - prices are likely to drop substantially.

In that scenario, the real winners will be people who waited to buy.

I guess cash-buyers will do better than financed buyers - but both of them are going to do terribly if prices decline substantially.

You cannot do a cash out refinance if you don't already have a mortgage on the property. You can do a home equity loan or line of credit but those come at higher interest rates than a refinance.

But yes the real winners are almost always those who have ample resources.

Anyone buying house all cash even at these high rates are financially illiterate or just dumb.

No one who owned a house 20 years ago had a 2.75% mortgage rate. That's the difference.

Artificially low*