Andy Babula, director of real estate program at the University of St. Thomas, spoke with the Minnesota Star Tribune about rising mortgage rates and slowing home sales across the Twin Cities. Babula explained how higher borrowing costs affect housing affordability, household spending and the broader economy as more prospective buyers reconsider purchasing homes.
From the article:
Even if you don’t own a home or plan on buying a home, a healthy real estate market matters, said Andrew Babula, director of the real estate program at the University of St. Thomas. Falling sales or homeowners gaining less equity could have serious implications for the overall economy.
If households pay more on home costs, including mortgages, they ultimately cut back on eating out, clothing, vacations and other non-necessities, he said.
“I think it’s like gas prices,” he said. “Anytime you have a required line item in your budget that’s demanding more of your budget, that need requires a higher percentage of your budget.”
Babula said the higher mortgage rates have a real impact on a family’s budget. If you have a $400,000 loan, for example, going from a 6% to 7% rate, it will add $250 to your monthly payment.
“That has a real impact on whether someone can afford to purchase,” he said. “And if they can ultimately afford to purchase that means a significant amount more of their budget goes to their home, and that has to come from somewhere.”
