Industry News

Study: Mortgage rates put pressure on home prices

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Dysfunction in the mortgage markets has made borrowing more expensive and increased the cost of owning a home by 10 to 20 percent -- a situation that is putting more downward pressure on home prices. That's the conclusion of new research by Columbia Business School real estate professor Chris Mayer, who looked at the relationship between home prices and the "spread" between mortgage rates and 10-year Treasury notes. In the last 20 years, rates on 30-year fixed-rate mortgages have averaged 1.6 percent above the 10-year Treasury rate. Thanks to the credit crunch, the "spread" has increased to more than 2.4 percent, meaning that borrowers are paying about 6.5 percent for fixed-rate loans instead of the 5.6 percent lenders would charge in a normally functioning market. That translates into a $145 increase in the monthly payments on a $250,000 mortgage, to $1,580 a month, Mayer said in a research note explaining his findings. "The problems in the...