Warren Buffett Once Called Mortgages A 'Terrific Deal' — Now Zillow Analyst Says Even 0% Rates Can't Make Homes Affordable In America
Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK) (NYSE:BRK) and Zillow Group Inc. (NASDAQ:Z) have expressed concerns that mortgage rates are unlikely to decrease enough to make homes affordable for the average American.
What Happened: Despite a slight decrease, the current 30-year fixed mortgage rate stands at 6.75%, as reported by Fortune. Economists and real estate groups are not optimistic about a significant change in this figure in the near future.
Zillow’s economic analyst, Anushna Prakash, suggested that mortgage rates would need to fall to 4.43% for a typical home to be affordable to the average buyer. However, she believes that such a rate decline is currently unrealistic.
Even with a 0% interest rate, buying a typical home would still be unaffordable in major cities like New York, Los Angeles, Miami, San Francisco, San Diego, and San Jose, Prakash wrote.
Berkshire Hathaway HomeServices also highlighted mortgage rates as a major deterrent for both home buyers and sellers. The company’s report in early July stated that many homeowners are hesitant to put their homes on the market and lose their current low mortgage rates.
This situation, known as the “golden handcuffs” or the locked-in mortgage rate effect, is causing a range of issues in the housing market, particularly in terms of inventory, according to the report. The number of unsold existing homes for sale rose 9% month-over-month in April, reaching 1.45 million, the highest level in five years.
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Why It Matters: The housing market’s affordability crisis has been a growing concern, with high mortgage rates being a significant factor. Despite increasing inventory levels, home prices and mortgage rates continue to pose challenges for potential homebuyers.
In July, it was reported, the average long-term U.S. mortgage rate recently rose to 6.72% after five weeks of decline. However, experts predict that mortgage rates will remain relatively stable in the coming months.
In 2012, Buffett advised young investors to buy homes instead of stocks, calling 30-year mortgages “a terrific deal.” However, the current mortgage rates may be deterring new buyers from entering the market.
In February, financial guru Dave Ramsey also stated that a paid-off mortgage is the new status symbol, emphasizing the importance of owning a home.
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Posted-In: Real Estate
