An estimated 18 million potential home buyers who would have qualified for a mortgage in January have essentially been frozen out of the market, no longer eligible for that loan.
That’s the effect of the skyrocketing mortgage rates that, on Thursday, reached their highest level in 14 years. That’s after the biggest one-week jump in 35 years.
Those who can still afford to buy a home right now can expect to pay 52% more on a monthly mortgage than they would have six months ago.
“We will see house price growth to level off here, and we’ll see some price declines in some of the more juiced up markets across the country, particularly and in my mind, that’s a correction when house prices start to go lower,” said Mark Zandi, the chief economist for Moody’s Analytics.
Mortgage applications are down more than 15% compared to 2021, dropping 5% in May alone. That’s prompting 1-in-5 sellers to drop their price.
Refinancings are down more than 70%, according to the Mortgage Bankers Association.
Those figures are likely to worsen with more rate increases from the Federal Reserve a near certainty. Following a brutal inflation report last week, the Fed increased a key interest rate by 75 basis points. It was the largest single increase by the Fed in 28 years. More big hikes are expected.
The effect is also being felt in those in the realty business. On Tuesday, the online real estate broker Redfin, under pressure from the cooling housing market, said it was laying off 8% of its workers.
“The housing market is in a downturn right now. It’s cyclical, and it just doesn’t support the number of employees we had before,” said Daryl Fairweather, Chief Economist for Redfin.
There remains more demand than supply for homes, so it’s too soon to call this a buyer’s market. But there are signs of cooling nationwide.
CBS News and The Associated Press contributed to this report.