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Yahoo Finance
If you're a baby boomer, you might not consider today's mortgage rates to be high. After all, in the 1980s and '90s, they were much higher. But if you're of a younger generation and experienced historically low mortgage rates throughout the pandemic, and years before, you probably feel otherwise. Well, a new normal is setting in, and it may sound fine or horrendous depending on who you are.
"I think the new normal for mortgage rates will be around 6%," the National Association of Realtors®' chief economist, Lawrence Yun, said in an interview with CNBC yesterday. "The Fed clearly has indicated that they will be cutting interest rates; even with delays, certainly whatever they don't do this year, will get pushed into next year, but the mortgage rate will not go down to 3%, 4%, or even 5%...so consumers should anticipate that 6% should be normal."
When inflation reached a four-decade high roughly two years ago, the Federal Reserve raised interest rates multiple times in an attempt to tame it. Inflation has cooled, but proved to be stickier than some may have expected.
We can't say the same for incomes. So, affordability is shot all around, and in Yun's view, the Fed needs to cut interest rates, mostly to support supply.
"What we are seeing is that apartment construction activity has really begun to come down because of higher financing costs—with a lack of supply, it could accelerate future inflation. So in order to assure that inflation is calm, the housing component, we need more construction, we need more supply," Yun said.
He continued: "The high construction financing cost today is restricting some of the developers, and that could actually lead to housing shortage and push up future inflation."