Housing market: Mortgage rates expected to decline

National Mortgage News Editor-in-Chief Heidi Patalano joins Yahoo Finance Live to discuss the state of the housing market, including mortgage rates, pricing, and challenges for first-time homebuyers.

Video Transcript

- Keeping a close eye on the housing market, buyers are flowing into the new home market. Sales of new single family houses hitting in 683,000 during the month of April. This comes as mortgage rates continues to gradually trend higher again after a few weeks of declines. Rates on a 30-year fixed rate mortgage, they topped 5% for the first time in over a decade last year climbing as high as 7%.

For more on the housing market, we're joined by Heidi Delano, who is the National Mortgage News editor-in-chief. Thanks so much for joining us on set.

HEIDI PATALANO: Thanks for having me. Great to be here.

- Certainly. So we were just diving into some of the numbers that broke this morning, particularly on the new home sales front. And one of the kind of figures that caught my eye here was the median sales price, that's sitting at about $420,000 right now-- so just shy of $500,000 there. And particularly, how that correlates to where people are finding mortgage rates.

You say in your notes to us they're expected to remain volatile in the near term. But what about as we get towards the end of this year where there's not as much buying that typically takes place towards that kind of latter half, or at least the third and fourth quarter of this year.

- Right. Well, there's some reason for optimism for first-time homebuyers, those looking to get into their homes now or in the near future. As we're noting, a lot of Fannie Mae is predicting that there may be a recession, of course, coming at the second half of the year. We've heard from the Mortgage Bankers Association, they expect rates to go down to about 5.6 by the end of the year, which should bring some people back to the table in terms of being interested in getting back in there and finally making an offer on a home.

So, you know, prices aren't going to come down drastically from where they are now. They may come down a smidge-- just a smidge. But really, there's so much more demand than there are homes to be bought, so that's really going to keep the prices pretty much where they are for the moment.

- Well, that and if we're seeing mortgage rates come down, doesn't that give a little room for prices to go up? In other words, when mortgage rates go up a lot, isn't that a little bit of a curb to some extent on pricing because if you're buying a house, you need a little bit more of an incentive on the pricing side?

- Right. Right. Absolutely. And you know, it's interesting that across the country, every market is different. And we're seeing more and more of that that every market has its own unique dynamics and there's different things at play. For example, in Boise, Idaho, over the pandemic, the prices went up 70%. And now they're coming back down. They came back down by about 8% from last year. So where there were huge increases, there is a little bit of a correction right now. And so yes, with rates coming down a little bit, they want to close that deal. It's possible to maybe come down a little bit more on price.

- That might be a little bit of a correction, but like that's not-- I mean, if it went up 70% and it's just coming down by 8%, that is still incredibly elevated. I mean, in other words, are you seeing as you look across the country, it doesn't sound like that there is a, quote unquote, "normalization" to pre-pandemic levels certainly.

- Right. Certainly not. No. From the start of the pandemic, prices went up about 30%. And they're only coming down just a little bit from that. They're still way above historic norms. And so that's actually really good for people who bought in the last few years. Of course, we don't want to see people who have purchased over the past two to three years have their homes now drop in value drastically.

So this is actually good for the health of the overall housing market the fact that these prices aren't coming down too much. But it's also tough for the first-time homebuyers who are really having a hard time getting into those homes that are affordable to them.

- Something that we heard about within the earnings reports of Home Depot and Lowe's was lumber deflation-- that being one of the kind of common threads or denominators there. But how does that also play into potential new homebuyers as well who are looking for a home in the price that they may potentially pay?

- Right. There's hope there. There's some hope there. One thing that's interesting about this market, you know, people in homes that exist today are not-- they are not incentivized to move. So they're staying put. And the things that are-- the homes that are available to first-time homebuyers are those new ones, those brand new ones. Making them affordable at this time is, of course, still challenging because labor and materials are still quite high, but that's where the real optimism is in the housing market for those new homes.

- I don't know what kind of consumer surveys you guys do or you draw from. When people are making those decisions right now, is it rates? Is it price? Is it still location, location, location? Like, what are kind of what are people prioritizing, I guess?

- Right. I think it's rates in some ways. Certainly for the people that do own a home now, they are not going to move right now. They're going to wait to see what's going to happen over the next couple of months. We're really just in a holding pattern until the next Federal Reserve meeting and we see what they do in terms of raising the federal funds rate.

And for others, it's a matter of relocating to a place that's more affordable for them. Like, maybe the existing homeowner will move if they're moving to a place where, you know, they can make up the difference in the higher cost of the new home because their overall cost of living will be lower. For first-time homebuyers, they want to get into this market no matter what. And so they're just looking. And you know, certainly a lot of lenders are trying to come up with products that will help them to get into these homes.

You might have seen yesterday, Rocket launched a new product where they will help cover the 3% down that a homebuyer will need in order to get those people into those homes and make it more of a realistic proposition for them.

- Hopefully that doesn't come back to bite on the other side. I don't know.

- Yeah. Mortgage News Editor-in-Chief, Heidi Patalano, thank you so much for joining us here on set today. Thank you so much for having me.