US real estate

Real estate expert wonders if house prices could fall amid Fed rate hikes

First American Financial Corporation Chief Economist Mark Fleming explained where he thinks house prices are heading amid expected rate hikes from the Federal Reserve as a way to rein in soaring inflation.

Fleming, who leads an economics team responsible for analyzing and forecasting trends in the real estate and mortgage markets, weighed in on current mortgage rates during an interview with “Mornings with Maria.” His appearance on FOX Business comes as inflation accelerated to a new four-decade high in March and price hikes were widespread, with housing costs rising 5% year-over-year and jumping 0.6% for the month.

HOMEBUYERS STRUGGLE WITH AFFORDABILITY Amid RISE IN PRICE AND INTEREST RATES: REPORT

Last month, the Department of Labor said the Consumer Price Index (CPI) – which measures a host of goods including gas, health care, groceries and rents – rose by 8.5% in March compared to a year ago, the fastest pace since December 1981, when inflation hit 8.9%. Prices jumped 1.2% in the one-month period from February, the biggest month-over-month jump since 2005.

Mortgage rates fell for the first time in seven weeks, according to the latest data from Freddie Mac, with the 30-year fixed ratemortgage rate falling to 5.1% on April 28. Although rates have fallen slightly, they remain significantly higher than at the same time last year.

First American Financial Corporation Chief Economist Mark Fleming discusses mortgage rates and house prices. (iStock/iStock)

The 30-year fixed-rate mortgage fell to 5.1% of the annual percentage rate (APR) for the week ending April 28, down from 5.11% the previous week and 2.98 % Last year.

Fleming acknowledged that 5% was a “big change” and noted that the number “should reduce demand and affordability in the housing market”.

HOMEBUYERS STRUGGLE WITH AFFORDABILITY Amid RISE IN PRICE AND INTEREST RATES: REPORT

He added that, historically, “5% is still a pretty good mortgage rate.”

“And because there’s such a shortage of housing there, even with the reduced demand due to the higher rates, it’s still out of balance, so prices shouldn’t come down,” Fleming said, noting that the prices could perhaps “soften in terms of their rate of appreciation.”

“But we would need much higher mortgage rates to really reduce demand to the point of meeting supply and driving prices down,” he continued.

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Data released last week for February 2022 shows that home prices continue to rise in the United States as limited supply and a race to block rising mortgage rates have attracted buyers.

According to the S&P CoreLogic Case-Shiller index, house prices rose 19.8% on an annual basis in February, compared with 19.1% the previous month.

The 10-city composite recorded an 18.6% annual increase year-on-year in February, compared to 17.3% the previous month, while the 20-city composite rose 20.2% d year-on-year, compared to 18.9% the previous month. month. All 20 cities reported higher price increases in the year ending February 2022 compared to the year ending January 2022, with Phoenix, Tampa and Miami leading.

Federal Reserve Chairman Jerome Powell late last month reinforced expectations of a half-percentage-point rate hike at the central bank meeting in May, as officials seek to control runaway inflation.

The housing market typically sees higher mortgage rates when the Fed raises rates. Although mortgage rates do not track the federal funds rate, they generally track the 10-year Treasury yield.

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“I think, expect the Fed to wait,” Fleming said Monday. “The jaw was effective, I think, in moving the markets before the actual things the Fed did and mortgage rates actually went further.”

“I think they even got ahead of the Fed and expectations a bit,” he added.

Megen Henney of FOX Business contributed to this report.