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A 1% drop in mortgage rates is equivalent to an 11% drop in home prices.

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The latest podcast from First American Economist discusses the current state of the housing market.

The topic is the rebalancing of the housing market, which hasn’t been beaten for a while.

over the years It is influenced by home sellers who enjoy bidding wars and offers over bids.

In 2023, it looks like it’s finally turning the opposite direction for homebuyers.

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But there are still questions about affordability. And what will happen to mortgage rates and house prices?

1% drop in mortgage rate = 11% drop in home prices

interesting one thing Prominent is the following line: “Today, a one percent drop in mortgage rates has the same impact as an 11% drop in home prices.”

the argument of home prices vs mortgage rates It has been around for many years. Most believed it was a seesaw.

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if one goes up another one must go down often in the same amount But the data says otherwise.

In fact, both can move hand in hand. For example, it is possible for both house prices and interest rates to rise if the economy is doing well.

Let’s say wages go up and the average American makes more money. It supports the growth of house prices.

But 2022 is not like any other year. in history mortgage rates.

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We don’t see normal rate increases. We saw an unprecedented increase in rates.

2022 was a very strange year for mortgage rates.

While higher mortgage rates don’t always indicate lower home prices, 2022 was a unique year.

Mortgage rates have never doubled in a calendar year. But it will almost certainly rise in 2022. The 30-year flat top started the year at 3.22% and ended at 6.42% continue. Freddy Mac information.

That’s enough to dampen homebuyer demand. Or worse, it makes people ineligible to borrow money to buy a house.

at the same time It appears to be leading the way to the top housing market due to significantly higher interest rates.

In general, you may see your mortgage rate increase by a percentage point or more in a year. If there is an upward trend

and if you look mortgage rates in the 1980sCompared to other leagues (e.g. 18%), the increase back then was not so noticeable.

We’re talking about an increase from about 14% to 18.5% over the worst 12 months of the late 1980s to late 1981.

But if you look at the percentage increase It was only about 36% increase.

As noted, by 2022 the 30-year fixed mortgage rate will increase by 100%.

This is what ultimately creates demand for housing. and lead to the conversion from seller to buyer’s market.

Mortgage rates tend to be 1% lower than house prices by 11%.

First Deputy Chief American Economist Odeta Kushi also noted that “Rates tend to move in percentages more than prices move 11%” in the past.

The general idea is that house prices are on a steady downward trend. This means that home prices will rarely drop. even though the inflation rate is high Real house prices can drop even if the stated price barely budges.

Either way It’s easier for mortgage rates to drop than home prices to dive into the double digits. Although many people expect housing market collapse.

And this is especially true now. Because today’s housing market is not the same as it was in 2008 when the Great Recession led to foreclosures and short sales.

I will always repeat what I said – Not your brother’s housing market.Most current mortgages remain the same, with lock-in rates in the 2-3% range.

Most of these homeowners don’t sell. Which is why house prices should fall.

In addition, because the mortgage rate has already dropped. Housing affordability can be improved in that way. without the need to reduce the price of a large house

The 30-year constant has been increased. above 7%And it’s now close to 6%. Some lenders offer as low to mid 5% if you pay in pairs. discount points.

Therefore, the balance in the housing market may come from falling mortgage rates. Not a price drop

This allows sellers to command a price that is reasonable enough to forget how much their home was once worth.

and gives buyers the ability to purchase real estate. Even if their down payment is slightly higher in line with the still high asking price.

Read more: Tips for buying a house in 2023

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