Mortgage rates have increased for the first time since the week of May 30, sparking concerns in the housing market. National Association of Realtors (NAR) deputy chief economist and vice president of research Jessica Lautz joins Wealth! to discuss the mortgage rate implications on the US housing market's outlook.

Lautz describes the rate increase as "really difficult" and "discouraging" for prospective homebuyers. She highlights the ongoing struggle to find affordable housing inventory, emphasizing the critical need for new home construction to boost supply. Many existing homeowners are reluctant to sell due to their locked-in lower rates, further complicating the inventory shortage.

"Certainly mortgage rates, if we see them coming down even a little bit, could be encouraging news for homebuyers," Lautz tells Yahoo Finance. However, she cautions that home prices continue to rise.

"In fact, if we see mortgage rates come down, we could see more bidding wars in the housing market today with this really limited housing inventory." This interplay between rates and inventory "is just part of the equation that perhaps some people may not feel encouraged to jump into right now," she adds.

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This post was written by Angel Smith

Video Transcript

Buying a home just became a little bit more expensive mortgage rates hitting their first weekly increase since May this week to break down what you need to know if you're in the market for a new home, Jessica Lutz, who is the National Association of Realtors, Deputy chief economist and vice president of research joins us now, Jessica.

Great to have you here on the show with us.

Ok.

So where are we seeing perhaps some continued movement in the housing market?

Especially knowing that a lot of consumers are hearing headlines like housing prices at all time highs and trying to figure out where their best entry point is.

Yeah.

So it's really difficult for consumers today and really discouraging actually, as we hit the summer months, knowing that interest rates are actually back on the climb now, we don't know if that's sustained or if we're going to see interest rates really in this range for a substantial period of time.

And I, I think this is probably where we're going to be uh when we think about a home buyer today looking at affordable price points, this is where they're having a very difficult time finding housing inventory that has been very tight at very expensive uh price points.

We are seeing that more buyers are in that market uh because they can afford that.

Uh and we also know that people have a lot of housing equity, so they're able to make these expensive trades certainly.

And, and as we're thinking about how that's playing into the calculus of buying a new home versus buying an existing home, where are you seeing that trade off kind of net out among those prospective buyers?

So when we think about uh the new home market, we know that it had been historically, a smaller portion of what it is today.

That being said, we know that right now, uh we need more home building than we currently have.

Housing starts actually have been pretty flat if we think about the last couple of months of data.

So this is not encouraging when we think about the need for more housing starts to come into the market for new housing inventory.

If you think about an existing unit, there's many people who are locked into these lower interest rates if they financed or refinance their home at 3.5% versus uh about nearly 7%.

Today, we're talking about a very substantial change in that mortgage payment that they may not be willing to do or cannot pay for that change above $700 a month.

Really?

Do you see affordability getting any better as the fed begins to cut interest rates anticipated in the second half of this year.

Well, it's all part of the equation.

Certainly mortgage rates.

If we see them coming down even a little bit could be encouraging news for home buyers.

But we also know that home prices are continuing to go up.

In fact, if we see mortgage rates come down, we could actually see more bidding wars in the housing market today with this really limited housing inventory.

And that just part of the equation that perhaps some people may not feel encouraged to jump into right now.

If we look at the housing market today, even with interest rates higher, we know that 30% of homes are moving over the asking price.

So if interest rates are cut and then that impacts mortgage rates as well, potentially more bidders hopping in and then with that bidding war, you could see the price having even more of a premium on top of it.

I mean, then at what point would we finally see, you know, enough of the property that is sold through?

And uh for those who may say, all right, well, I'll just build a new home if they have that luxury or are able to do so.

At, at what point would you see the the settling of some of that activity and perhaps retrenching to more normalization?

I would say we need to have several years of home building activity.

That's quite strong to bring in some equilibrium to the market because the big thing that we have right now is a huge wave of young adults coming into the housing market trying to find their first property.

At the exact same time that baby boomers are hitting retirement actively in retirement, looking for that perfect home as well.

It's putting a lot of pressure on the housing market right now for limited inventory at the same time that current homeowners are unwilling or unable to be able to move.

All right, I want to end this conversation with some actionable tips for those who are excited.

They're revved up, they're going out to some open houses this weekend.

What do they need to be keeping in mind, Jessica?

Well, stay in close touch with your experts.

You wanna make sure that you have your realtor on your side, but you also wanna make sure that you're keeping in close touch with your mortgage broker to make sure that you can afford the homes that you're looking for.

All right, Jessica Laut, who is the National Association of Realtors, Deputy chief economist and vice president of research.

Good to have you on the program here with us today, Jessica.

Thank you.