Rising mortgage rates lock out homebuyers, trigger layoffs
6.7% rate is more than double that of a year ago
David Avgi, an agent at Avenues Real Estate, has a problem.
Rising mortgage rates have pushed potential homebuyers out of the market as sellers have refused to slash their prices.
“We’re currently in a stalemate with buyers,” Avgi said.
Across the market, homebuyers have seen homes within their reach become unaffordable as mortgage rates have doubled in the past year. The average rate on a 30-year fixed mortgage Thursday was 6.7 percent, the highest since July 2007. A year ago, rates were at 3 percent.
Historically, when borrowing costs go up, home prices come down, but that has not happened this time because so few homes are for sale, according to Melissa Cohn, a senior executive at William-Raveis Mortgage.
“Inventories are not at levels that will really turn it into a true buyer’s market and having prices really soften to compensate for these significantly higher mortgage rates,” she said.
Cohn said high-end markets, such as New York City, the Hamptons and South Florida, have struggled the most with a lack of inventory and high prices.
Douglas Elliman agent Richard “Tom” Crooks, who works with many first-time homebuyers, has seen many scramble in the past few months as rates rose — backing away from deals, getting help from their parents or rushing into deals in the hopes of avoiding even higher rates.
“It’s a little bit of a fear factor for a few of them,” Crooks said.
Still, some believe rising rates will bring stability to a market where sellers have been calling the shots since early in the pandemic.
“It feels like it’s extreme, but that’s only because we’ve been living in extremes for at least two years, where it was 100 pecent seller side. So now we’re really just coming back to the center,” said Nest Seekers chief economist Erin Sykes. “And it’s helping people kind of reevaluate what they want to do.”
Plunging home sales have led to layoffs across the industry. Brokerage giant Compass has undergone several rounds of them. Anywhere Real Estate also slashed staff. Proptech startup Divvy Homes let 12 percent of its workforce go.
In the mortgage world, Citi cut its lending staff in September, Blend Labs eliminated 220 jobs in August on top of 200 jobs cut in April (shedding approximately 25 percent of its workforce), and, in July, Sprout Mortgage announced it would go out of business.
“A lot of firms hired, hired, hired just to keep up with that marketplace,” Cohn said. “There’s going to be a new normal and the real estate brokerage and mortgage industry as well are going to have to right-size again.”