It’s getting more expensive by the moment to buy a home in America. Mortgage interest rates, historically low during most of the pandemic, are rising faster than they have in decades.
more than 8 percent in just one month. That spike, shown above, points to an entirely new and unpredictable phase in what has been a jaw-dropping housing market.
soaring now, too. That means the alternative to buying isn’t particularly appealing, either. And in a time of high inflation, buying a home — and locking in today’s monthly payment for the next 30 years — is a good way to shield yourself from rising rents. In a context of 8 percent annual inflation, a 4.5 percent mortgage interest rate is actually a decent deal.
For would-be home buyers, “the alternative is both the rental option, as well as the option of where do you put your money?” said Arpit Gupta, a professor at N.Y.U.’s Stern School of Business. During past periods of high inflation, real estate has tended to be a better asset than other kinds of investments like stocks (and better than leaving money in a checking or savings account).
Mr. Gupta warns that rising rates can also make rental inflation even worse, because it pushes more people out of the buyer market and into the rental market, driving demand there. In a kind of feedback loop, those ever-rising rents will also continue to put pressure on people who can afford to buy instead, even at higher interest rates.