Rising mortgage rates add to the challenge of buying a home

But some buyers — especially first-time buyers — may decide to wait until even higher rates help cool prices later in the year. The larg...

But some buyers — especially first-time buyers — may decide to wait until even higher rates help cool prices later in the year. The largest share of homebuyers are millennials aged 21 to 40many of whom are first-time buyers, according to the National Association of Realtors.

“The spring season will be very interesting,” said Lawrence Yun, chief economist of the Realtors Association.

Ultimately, the housing market needs more inventory, Yun said. “We need a supply of empty houses.” Builders have faced challenges to keep newly built homes affordable, including high lumber prices and difficulty finding construction workers.

Buyers may need to consider more affordable homes in less urban areas, Yun said. This may depend on the ability of the owners to be able to continue working remotely.

One variable in the number of homes for sale is the end of mortgage forbearance granted during the pandemic. Many landlords were able to resume their payments after their payment break expired. But some may not be able to, forcing them to sell their homes, said Michael Fratantoni, chief economist at the Mortgage Bankers Association. The number of borrowers in forbearance has decreased, about 705,000 owners at the end of 2021.

Inflation FAQ

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What is Inflation? Inflation is a loss of purchasing power over time, which means your dollar won’t go as far tomorrow as it did today. It is usually expressed as the annual change in the prices of common goods and services such as food, furniture, clothing, transport and toys.

What causes inflation? This may be the result of growing consumer demand. But inflation can also rise and fall depending on developments that have little to do with economic conditions, such as limited oil production and supply chain issues.

Is inflation bad? It depends on the circumstances. A fast prize increases spell problems, but moderate prize gains can cause higher wages and job growth.

Can inflation affect the stock market? Rapid inflation usually spells trouble for stocks. Financial assets in general have historically performed poorly during inflation boomswhile tangible assets like homes held their value better.

As always with real estate, terms vary. Agents of some hot markets say an interest rate hike may take time to affect prices because some buyers don’t need financing to buy homes. Kyle Schelvan, an agent with Team Asa, which is part of eXp Realty, in Orlando, Florida, said homes in the area were often bought by people who had sold homes elsewhere and used their proceeds in cash to buy houses in Florida. Traditional buyers sometimes have to take steps they would once have considered absurd, he said, such as buying a tenant-occupied home and waiting months for the lease to expire before they can move into the property. “It’s difficult,” he said.

Here are some questions and answers about mortgage rates and the housing market:

As mortgage rates rise, should I consider an adjustable rate mortgage?

Adjustable Rate Mortgages or ARMs, offer a fixed interest rate for a certain period before switching to a variable rate. The loans got a bad rap during the 2008 housing crisis because some lenders gave them to unqualified buyers who couldn’t afford higher payments when interest rates soared. Continued skepticism about adjustable loans, combined with low fixed-rate mortgage rates in recent years, has held ARMs out of favour, Black Knight’s Walden said.

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