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High mortgage rates dampen home sales

High mortgage rates drive down home sales
High mortgage rates drive down home sales 02:09

Baldwin, New York — It's not a great time for home sellers, with the Federal Reserve raising interest rates to help combat inflation, driving up the cost of borrowing money. 

The average for a 30-year fixed mortgage rate briefly crossed the 7% mark before dipping to 6.95% this week, according to Freddie Mac, more than double what it was a year ago. That means monthly payments on a $400,000 loan would be more than $2,600 — nearly $950 more compared to the same loan last year. 

Terri Arena received an offer for her home on Long Island, New York, well below asking price after it had been on the market for just six days. She told CBS News she is concerned that "there aren't going to be as many people out there with the same buying power," but she's not ready to drop the price. 

"That's why I made that decision to put it on the market now, because if I wait until the spring, it definitely will be lower," Arena said. "So why not try now? Even though the interest rates came up." 

Home sales in Long Island's Nassau County are down more than 22%. It's a trend happening across the U.S. over the last eight months — the longest slump since the start of the housing crash in 2007. 

Arena's broker, Eric Stutz, said that though prices are down, they are still much higher than before the pandemic. 

"I think it is still a great time to sell now," Stutz said. "But going forward, the market is definitely trending down and I expect home prices to continue to drop well into next year." 

That is because rising mortgage rates are shrinking the number of people who can afford to get a home loan. 

"A lot of buyers have either dropped out of the market and are sitting on the sidelines," Stutz said. "Some of them are even relocating." 

Wells Fargo economist Charlie Dougherty said it is all part of the Federal Reserve's efforts to lower inflation. 

"The Federal Reserve is cognizant of what's happening in the housing market, but they're willing to let the housing market go under a correction if that means inflation is going to come down," Dougherty said. 

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