Housing market: Moving rate hit 'new historical low' in 2021, economist says

National Association of Realtors (NAR) Senior Economist and Director of Forecasting Nadia Evangelou joins Yahoo Finance Live to discuss how Fed interest rates will affect mortgage rates, housing inventory, and home sales.

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SEANA SMITH: It's a big week for housing with a number of reports on deck. We will get a look at home prices tomorrow with the S&P Case Shiller Index, as well as new home sales for August. On Wednesday, a look at pending home sales. And on Thursday, the latest reading on mortgage rates with rates currently sitting at the highest level that we've seen since 2008. Now for more on this, let's bring in Nadia Evangelou, National Association of Realtors senior economist and director of forecasting. Nadia, it's good to see you. So big question here, especially for those looking to buy, is how high rates are going to potentially go. What do you think?

NADIA EVANGELOU: Sure, hi, Seana. So what we see is that mortgage rates have doubled, surpassing since the beginning of the year, surpassing the 6% threshold. So now the borrowing costs are about, like, 60% higher. So now buyers, they need to spend about $800 more. With the Fed raising even further, having more rate hikes, so we expect inflation running still very elevated. So we expect mortgage rates to continue to rise. So we should expect for the following, like, months to be around like 7%.

RACHELLE AKUFFO: And Nadia, obviously, with prices so high and, obviously, mortgage rates so high, it's having a lot of people sort of staying put, who potentially would have moved or would have sold. What is that low mobility, then, also doing to the housing market?

NADIA EVANGELOU: Yeah, generally, rising mortgage rates lead to lower mobility rates. Like, over time, like, owners may be locked into their existing homes, as mortgage rates rise, while the 3% rate from last year may not be back, like, anytime soon. Meanwhile, on top of higher mortgage rates and home prices, moving costs has also increased, as inflation runs above 8%. Thus, all these factors make it more difficult for homeowners to move and purchase the next home.

In the meantime, that's the reason that it's worrisome we see that the mover rate reached a new historical low in 2021. Although millions of people, like, moved during the pandemic driven by the opportunity to work remotely and the desire for more space and better affordability, the US migration continued to decline in 2021, even though we thought that more people were moving around. However, this is not a new trend. Like, mobility gradually, like, declines over the past, like, decades. And to give you an idea, like, back in the 1980s, for example, nearly one in five Americans moved every year. However, only one in 12 Americans moved in 2021.

Thus the rising borrowing cost may drop mobility rate, like, even further. But how it may affect, like, the real estate market, lower mobility translates to fewer homes available in the market, as fewer people are selling their homes when we actually need more inventory. Thus, while our country is suffering from a severe housing shortage, lower mobility can make housing inventory even tighter and can cause, like, home prices continue to escalate.

However, I think homeowners should consider that they have already accumulated, like, substantial equity in the last especially couple of years. Like, for example, if they bought their home two years ago when rates were about, like, 2.9%, they have built about, like, 80,000 in equity due to the price appreciation. Or owners who bought their house, like, 10 years ago, their home is currently worth about, like, 200,000 more than then, thus making--

SEANA SMITH: So, Nadia, what does this then do to home prices? Because we heard Jay Powell, the Fed Chair, last week saying that we could be in for a correction. Lots of speculation, lots of thought out here that we will see home prices start to decline. But will that decline then be even slower than we initially thought?

NADIA EVANGELOU: Yeah, we expect that-- we see a deceleration. There's a gradual acceleration of home prices. Like, home prices have increased year over year by less than double digits. So we don't have any more double digit percentage change for home prices. And while rising mortgage rates, home prices hurt affordability, many buyers are priced out of the market. Like, nearly about 20% of the households across the country can no longer afford to buy the median price when compared to last year.

So with fewer buyers in the market, demand has cooled. And in normal conditions, a decline in demand makes home prices to drop. However, demand for homes continues to outpace supply, and inventory may have picked up. But it isn't enough to make home prices to drop. And while housing inventory will remain tied for the next, like, at least a couple of years, we don't expect a depreciation of home prices. We expect home price growth to slow at the rate, like, 5% by the end of 2022, so for 2022 to have, like, on average, about, like, 9% and then the next year to have, like, about 1% increase in the home prices in 2023.

RACHELLE AKUFFO: And we are seeing a bit of a difference between some of these single family homes and multifamily homes. What are your expectations as to how those two are going to develop going forward?

NADIA EVANGELOU: We see, like, multifamily construction that even though the last figures were not, like, very encouraging, but however, when we see that multifamily construction is advancing compared to single family homes, then we see a decline. And this is what we expect. We expect, like, fewer homes, a decline on the single family homes for 2022. However, multifamily to continue to outpace about, like, 20% more multifamily homes in having inventory. This is very good news for renters. It seems like rents are rising also very fast at the four, like, decades, like, high that we have. So we may see-- we want to see, like, even more inventory for both multifamily and single family homes.