Yahoo Finance Kevin O'Leary Warns High Mortgage Rates Are Here To Stay, Says 'Housing Costs Have Gone Up 30-40 Percent — That's A Lot More Than Four Years Ago'
ABC ‘Shark Tank' star Kevin O'Leary issued a warning about the housing market, which is experiencing one of the least affordable periods on record.
Citing mortgage rates nearing two-decade highs as the chief factor driving up housing costs, O’Leary said affordability is unlikely to improve anytime soon.
"What’s changed the cost of housing is the rapid increase two years ago in interest rates and the anticipation was that rates would come down. In fact, only 12 months ago, we were thinking seven rate cuts, of which none have appeared because inflation remains rampant," the ‘Shark Tan' investor said on Fox Business.
"We’re still north of three percent. So housing is adjusted based on very simple equation to interest rates and they’re high or higher than they were — it’s really hard to see that change, I’m not sure that’s going to change at all," he said.
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The pandemic also played a role in reshaping the housing market, O'Leary mentioned. After the Federal Reserve started raising interest rates in March 2022 to address surging inflation, borrowing costs increased in the U.S. Despite a recent cooling trend, inflation has not yet stabilized at the central bank’s 2% target, leading to persistently high interest rates ranging from 5.25% to 5.5%, the highest in two decades.
Remote work became more prevalent, prompting many Americans to move from metropolitan areas to suburban and rural regions.
That migration caused home prices in some rural areas to rise. "We had this weird outcome of the pandemic where people started to move away from metropolitan areas into areas where they wanted to live and get better schools and everything else, and the prices of those housed in rural regions went way through the roof," he said.
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The impact of the shifts is evident in the data. Mortgage rates, currently hovering around 7.2 percent, are nearly double what they were four years ago, pushing housing costs up by 30-40 percent, according to Fed data, which shows that the median sales price of a home surged to nearly $421,000 as of the first quarter of this year.
The spike in home prices and higher borrowing costs has reduced affordability for many potential homebuyers.
Other real estate experts echo O'Leary's sentiments. Zillow economists predict that home prices and mortgage rates will remain relatively stable this year, potentially leading to another difficult year for home sales.
Despite these challenges, O'Leary is optimistic about the long-term value of real estate. "Real estate has always been a good investment for 200 years, that’s proven out over history," he said.
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