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With mortgage rates near 7%, the housing party is over. Now it’s hangover time : NPR


Mike Johansen stands by the door of the camping trailer where the couple live while they wait for construction on their new home to be completed.

Andrea Johansen


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Andrea Johansen


Mike Johansen stands by the door of the camping trailer where the couple live while they wait for construction on their new home to be completed.

Andrea Johansen

These days Andrea and Mike Johansen are not living their best lives. It was temporary but the pair were crammed into a small camping trailer at her parents’ ranch in western Massachusetts, across from a coop with 100 very noisy chickens.

“It started at 4:30 a.m.,” says Andrea. “You’re trying to zoom calls to work, and when the sun starts to set, they start again… go bonkers.”

The Johansens thought they would now live in a newly built house. But with supply chain delays, it’s not over yet. And so what was supposed to be a quick stay in camp between houses is dragging on.

For the Johansens, it looks like a $360,000 mortgage will cost them about $800 more in monthly payments. And that will be very difficult.

“We’re living in the trailer because we can’t afford to live anywhere else,” Andrea said. “Our stuff is in storage and that’s almost $1000 a month.”

Mortgage rates have skyrocketed. From 3% at the beginning of the year to nearly 7% increase in the past two weeks on a 30-year fixed-rate loan. Rising rates have slowed home sales for the seventh straight month as frustrated buyers waved and gave up, unable to afford larger payments.

Andrea and Mike Johansen with some chickens at her parents’ farm.

Andrea Johansen


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Andrea Johansen


Andrea and Mike Johansen with some chickens at her parents’ farm.

Andrea Johansen

Mike is a CPA and Andrea works as an engineer. They can afford a higher mortgage, but that means they can’t spend or save money on other important things.

“I’m 41 years old,” Andrea said. “I need to save for retirement.”

Rising mortgage rates mean some people are pulling out of buying a home altogether. In Colorado, 32-year-old Hillary Tollerud-Ho has also agreed to buy a new home. But with the higher rate, she and her husband could no longer qualify for a mortgage.

“We were told we had to pay off my husband’s credit card and had to have $100,000,” she said. “There’s no way we’d have that.”

The couple lost the $1,000 deposit they had put down. And they can take more than that. “Fortunately, the builders are more than understanding,” she said. “They didn’t need to, according to the contract we signed, but they earnestly returned the $5,000.”

Higher mortgage rates are keeping millions out of homeownership. And as a result, it’s no longer a frenzied housing market with bidding wars and multiple offers for every home. Nowadays, a broker can have an open house and no one shows up.

“What we’re going through right now is like a hangover from this party in the housing market that’s been going on for the past two years,” said Daryl Fairweather, chief economist at Redfin. “That party was fueled by cheap debt from the Federal Reserve, and now inflation is ending the party.”

The Fed kept interest rates very low after the pandemic hit because of concerns that the business shutdown would trigger a severe recession. But that super-low price combined with strong demand has fueled a staggering rise in home prices – between 30 and 40% percent in just 2 years depending on the housing index you look at.

Now to fight inflation, the Fed is aggressively raising interest rates. And mortgage rates have more than doubled this year. It’s pouring cold water into the housing market.

Apart from the slight drop during the pandemic, sales were the slowest since 2015. Home prices have slight decrease, about 6% from their peak in June. But Fairweather doesn’t see a sharp drop in prices ahead.

“We expect home prices to stay flat next year,” said Fairweather. She said the housing market has recovered as rates have risen. “A recession could change how solid it is, but for now, it’s extremely solid.”

The biggest factor driving prices up is the housing shortage following the recent housing crash. Many builders lost money. And for a decade, the pace of home construction has fallen short of demand. So even other economists Those who think prices could fall 10-20% nationally from their recent peak are still not anticipating a severe drop in prices. Housing supply is still too tight.

“Mortgage rates going up and down are not going to solve the housing shortage,” said Fairweather. “It will be there.”

The couple said they were ready to move into their new home and went to bed at 4:30 a.m. when the chickens on her parents’ farm started to “snack”. They just hope mortgage rates drop lower before it’s too long.

Andrea Johansen


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Andrea Johansen

Back at the chicken coop, Andrea and Mike Johansen are hoping rates drop before their house is finally built so they can lock in a lower rate.

By November, Andrea said with fading optimism, “perhaps between now and then they’ll go down a bit, maybe?” Her husband said he didn’t think it was possible.

“I don’t think it’s going to happen either,” Andrea said. “But there is a wise ‘hopin’ and prayer.'”

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