Another well known name in the housing market. a few weeks ago, it was Elon Musk Claiming that home values will decline as commercial real estate faces headwinds. Now, it’s Barbara Corcoran — though she’s a more experienced source when it comes to real estate — to the contrary.
Corcoran made these statements in a recent interview with Liz Clammon of Fox Business. “There is no connection between commercial and residential,” Corcoran told her. “Residential is resuming, but commercial is in trouble.”
“So Elon is wrong?” Kleiman asked.
“Of course he’s wrong,” said Corcoran. “once again.”
an interest rate constraint
According to Corcoran, high mortgage rates at Freddie Mac are keeping prices from rising much further, which now stands at 6.71%.
Average rates have climbed nearly 150 basis points in just the past year and have exceeded 400 since rates were at their lowest in early 2021—just 2.65%.
Rising rates have discouraged many in what the industry calls the “golden handcuffs” on today’s homeowners from listing their homes and buying new ones. (This would require trading an ultra-low interest rate for today’s very high interest rate). According to Redfin, about 85% of mortgage homeowners currently have rates of 5% or less.
“Sellers don’t want to move from their apartments or their homes because they don’t want to take on higher interest rates, and buyers are very scared because they are getting less homes. In fact, they are getting half the homes they had for two years. Would have been years ago,” Corcoran said. “So you have a deadlock going on.”
High house prices may be down the pike
Corcoran’s right: Buyers have definitely pulled back since the jump in rates. According to the Mortgage Bankers Association, applications to buy homes are now 27% below last year’s levels, and the rapid rise in home prices has stalled as a result. The median sale price rose from $382,000 in January to $407,415, according to the latest numbers from Redfin, but is down 4% from a year ago.
Things will change once rates kick in, though, Corcoran told Clammon. “The minute those interest rates come down, all hell is going to break loose. Prices are about to go through the roof,” she said.
Many industry players expect rates to actually drop later this year. MBAs are predicted to drop to 5.6% by the end of 2023 and 4.8% by 2024. Fannie Mae’s latest forecast calls for rates of 6% and 5.4%, respectively.
These are just predictions, but if they turn out to be true, it could lead to a surge in demand, which the housing market is ill-equipped to meet. Housing inventory is currently near an all-time low, and the market is already short of demand by 6.5 million, according to Realtor.com. Lower interest rates will only add fuel to the fire.
As Corcoran said, “This is going to be the signal for everyone to come out and buy like crazy. We may have Covid again.”
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Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
