Another famous name weighs on the housing market. A few weeks ago it was Elon Musk saying home values would plummet as commercial real estate faced headwinds. Now it’s Barbara Corcoran— although a more experienced real estate source — boasting otherwise.
The statements came in a recent interview Corcoran did with Fox Business’ Liz Claman. “There is no relationship between commercial and residential,” Corcoran told him. “Residential is starting to rebound, but commercial is struggling.”
“So Elon is wrong? Claman asked.
“Of course he’s wrong,” Corcoran said. “Again.”
An interest rate bottleneck
Corcoran says what’s keeping prices from rising much now is a “bottleneck” caused by higher mortgage rates, which now sit at 6.71%, according to Freddie Mac.
Average rates have climbed nearly 150 basis points in the past year alone and more than 400 since rates bottomed out at just 2.65% at the start of 2021.
Rising rates have put what many in the industry call “golden handcuffs” on today’s homeowners, discouraging them from listing their homes and buying new ones. (That would require trading an ultra-low interest rate for today’s much higher rate). According to Redfin, about 85% of mortgage owners currently have a rate of 5% or less.
“Sellers don’t want to leave their apartment or their house because they don’t want to bear higher interest rates, and buyers are too scared because they get less house. In fact, they are getting half the house they would have two years ago,” Corcoran said. “So you have a stalemate going on.”
Rising house prices could be down
Corcoran is right: Buyers have definitely pulled back since rates jumped. Home buying inquiries are now 27% below last year’s levels, according to the Mortgage Bankers Association, and home prices have halted their strong ascent. The median sale price stands at $407,415, according to the latest figures from Redfin, down from $382,000 in January, but down 4% from a year ago.
Things will change once rates take a turn, Corcoran told Claman. “The minute these interest rates go down, everything is going to break loose. Prices will skyrocket,” she said.
Many industry players expect rates to fall later this year. MBA projects rates will drop to 5.6% by the end of 2023 and 4.8% by the end of 2024. Fannie Mae’s latest forecast calls for rates of 6% and 5.4%, respectively.
These are just predictions, but if they ring true, it could spur a jump in demand, which the housing market is ill-prepared to respond to. Housing inventory is currently near an all-time low and, according to Realtor.com, the market is already 6.5 million short of demand. Lower interest rates would only add fuel to the fire.
As Corcoran said, “This is going to be a signal for everyone to come back and buy like crazy. We could have COVID again.
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Note by BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.