Housing Boom Set to End With 5% Mortgages

By Douglas A. McIntyre Published Mar 28, 11:36AM EDT

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Housing Boom Set to End With 5% Mortgages — © ScottNodine / iStock via Getty Images

The housing market in the United States has been through an explosion over the past two years. Prices nationwide rose nearly 20%, and in some large cities were up more than 25%.

One reason for the increase is that middle-class and upper-class incomes tended to rise during the COVID-19 pandemic. Some of this money went into the stock market, and its rapid rise has added to the net worth of millions of Americans.

People also have been able to relocate from very expensive coastal cities like New York and San Francisco to less expensive cities like Boise and Nashville. Home prices in these smaller cities can be half as much as larger city homes. Ironically, this surge to smaller cities has sent prices up in them as well.

Working from home is another factor in the rush to get new houses. People who were tethered to physical offices can now work from home and can move themselves and their families far from places they used to work at physically.

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The final contributor to the rise in home prices (and perhaps the most significant one) is the historically low cost of mortgages. This has been well below 3% for 30-year fixed home loans. Recent rate increases by the Federal Reserve have pushed that over 4%, and there is worry the figure will go much higher. CNBC recently reported on the rapid rise: “The average rate on the 30-year fixed mortgage shot significantly higher Friday, rising 24 basis points to 4.95%, according to Mortgage News Daily.”

Some buyers have been on the sidelines, hoping that home prices eventually would cool. This would allow them to get homes at closer to the “reasonable” prices of five years ago. Unfortunately, even if home prices dip, that could be more than offset by higher mortgage rates, particularly in terms of monthly housing costs.

The good news is that high rates could bring down home prices. The bad news is that high mortgage rates will not help lower monthly mortgage payments.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.