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As mortgage rates rise, some people are giving up on owning a home

LEILA FADEL, HOST:

With mortgage rates hovering around 7%, some people are giving up on the dream of buying a home. Monthly mortgage payments for a typical home are now nearly $1,000 higher than they were at the start of the year. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: These days, Andrea Johansen and her husband Mike are not living their best life.

MIKE JOHANSEN: So over here is the camp trailer that we're staying in.

ARNOLD: It's a temporary thing. But for now, they're living crammed into a small camping trailer at Andrea's parents' farm in western Massachusetts, right across from a barn with more than a hundred chickens.

(SOUNDBITE OF CHICKEN SQUAWKING)

ANDREA JOHANSEN: They're kind of calm right now. I mean, they were going bonkers. It starts at like 4:30 in the morning. You're trying to have Zoom calls for work in the afternoon. And when the sun starts going down, they start all over again.

JOHANSEN: They start squawking.

(SOUNDBITE OF CHICKEN SQUAWKING)

ARNOLD: The couple thought they'd be in a newly built house by now. But with supply chain delays, it's not finished. And so what was supposed to be a quick stay in the camper between homes has dragged on. And now, at today's rates, it looks like getting a $360,000 mortgage is going to cost them about $800 more every month, which is going to be tough.

JOHANSEN: Well, we're living in the trailer because we can't afford to live anywhere else. Our belongings are in storage, and that's almost $1,000 a month.

ARNOLD: Mike's a CPA, and Andrea works as an engineer. They say they'll be able to afford the higher mortgage payment, but it means they can't spend or save money on other important things.

JOHANSEN: I'm 41 years old. I need to save for retirement, you know?

ARNOLD: Some people are having to back out of buying a house at all. In Colorado, 32-year-old Hillary Tollerud-Ho had also agreed to buy a new home. But with the higher rates, she and her husband can't qualify for a mortgage anymore.

HILLARY TOLLERUD-HO: We were told we'd have to pay off my husband's credit card and have to have $100,000 down, and there's no way we had that.

ARNOLD: The couple lost a thousand-dollar deposit they had put down, and they could've lost more.

TOLLERUD-HO: Luckily, the builders were more than understanding. Like, they didn't need to, according to the contract we had signed, but they returned the $5,000 earnest money.

ARNOLD: The higher mortgage rates are putting homeownership out of reach for millions of people. The pace of sales has fallen for seven months in a row, and it's no longer a frenzied housing market, with bidding wars and a bunch of offers on every home. Daryl Fairweather is the chief economist at Redfin.

DARYL FAIRWEATHER: What we're experiencing now is, like, a hangover from this party in the housing market that was going on for the last two years. And that party was fueled by cheap debt from the Federal Reserve. And now, inflation is ending the party.

ARNOLD: The Fed kept rates super low during the pandemic, and that helped drive home prices up massively - between 30% and 40% in just two years. Now, to fight inflation, the Fed is raising rates, and that's thrown cold water on the housing market. As far as home prices, though, they've fallen a bit the past couple of months, but Fairweather doesn't see big price drops ahead.

FAIRWEATHER: We're forecasting that home prices will be flat next year, year over year. Housing looks pretty resilient right now. You know, a recession might change how sturdy it is. But for now, it's been incredibly sturdy.

ARNOLD: The biggest factor propping up prices is that we just don't have enough homes. After the last housing crash, many builders lost money, and we didn't build enough for a decade.

FAIRWEATHER: Mortgage rates going up and down doesn't do anything to solve the housing supply shortage. That's going to be there.

(SOUNDBITE OF ROOSTER CROWING)

ARNOLD: Back by the chicken barn, Andrea and Mike Johansen are hoping that rates fall before their house finally gets built so they can lock in a lower rate.

JOHANSEN: Man, we're hoping, by the time we close - 'cause they keep they keep pushing us out. They pushed us out again, to the end of November - that maybe they'll come down a little bit between now and then - maybe?

JOHANSEN: Maybe. I don't think so.

JOHANSEN: I don't think it's going to happen either, but there's wishing, hoping and praying.

ARNOLD: Chris Arnold, NPR News.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered, and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.