NEW YORK–A new analysis of the Federal Reserve’s plans to “tame the housing frenzy with higher interest rates has a major blind spot. More than 40% of all U.S. mortgages—most of which are fixed-rate—were obtained in 2020 or 2021 when rates were “rock bottom.”
According to the report and research by Creditnews, 23.4% of mortgages were originated in 2021 when the 30-year mortgage rate fell below 3%. Another 17.8% were originated in 2020—the year the Fed cut interest rates to near zero.
Nearly two-thirds (64.5%) of U.S. mortgages have rates below 4%, roughly half the current 30-year fixed rate, the analysis added.
Big Monthly Difference
“Assuming a 10% down payment, the difference between financing an average home with a 30-year mortgage at 7.79% (mortgage rate peak as of Oct 26) and 3.6% (effective mortgage rate) is an extra $1,223 a month,” the Creditnews analysis states. “This discrepancy has created a feedback loop of limited inventory and growing prices, locking would-be buyers out of homeownership—especially those in the Millennial and Gen Z generations.
“In 2023, Millennials made up only 28% of homebuyers despite being in the prime home-buying age,” the report added. “That’s just over half as much as it was in 2022 before rates took off. And at just 4%, Gen Zers made up the tiniest fraction of homebuyers.”
‘Disproportionally Higher Prices’
Added Sam Bourgi, senior analyst at Creditnews, “The Fed’s aggressive rate-hike campaign has worsened the generational homeownership divide. Unlike Baby Boomers who can afford to buy in cash, Millennials and Gen-Z buyers need financing. That’s been harder to get with mortgage rates at 22-year highs. Homebuyers aren’t getting any help from the market, either. Homeowners refuse to sell because they don’t want to trade their low mortgage rate for a much higher one. So, whatever housing supply makes it to market comes at disproportionally higher prices.”
For the full analysis, go here.
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