Mortgage Rates Are Above 7%. Is It Better to Rent or Buy a Home Right Now?

Key Points:

• The US housing market is under stress due to high mortgage rates above 7% and rising home prices, leading to decreased affordability and a shift to a buyer’s market with more sellers than buyers.
• Many homeowners are reluctant to sell because they hold low-rate mortgages from recent years, causing a "lock-in effect" that suppresses existing home sales and keeps transaction volumes low.
• Homebuilders are offering incentives like mortgage rate buydowns to attract buyers, sacrificing profit margins to maintain sales volume amid financial pressures.
• Existing home prices have been outperforming new homes recently, but this trend is reversing as inventory normalizes, likely putting downward pressure on existing home prices.
• Morningstar expects mortgage rates to gradually decline to around 6% by 2028, which could improve affordability and stabilize the housing market long-term, presenting buying opportunities in undervalued homebuilder stocks like Lennar.
• Regarding the upcoming US midterm elections, divided government is likely to result in legislative gridlock with limited major policy changes, meaning minimal impact on the overall economy.
• While elections may affect specific individuals, such as those relying on ACA health plans, broader economic and market trends are more influenced by factors outside politics, including technological advances like AI.