Kevin O'Leary Issues Warning About Housing Market

Kevin O'Leary Issues Warning About Housing Market Exterior of house at night on tree lined, snow covered street, Chesterfield Inn, New Hampshire, USA. High mortgage rates have made housing costs expensive.

Investor Kevin O'Leary suggested that elevated mortgage rates, which continue to hover at their highest in almost two decades, are likely to remain in place going forward, preventing housing costs from lowering any time soon.

Borrowing costs in the U.S. shot up after the Federal Reserve began hiking interest rates in March 2022 in an attempt to slow down inflation, which had soared at one point to 40-year highs. Inflation has cooled in recent months, but has yet to come down to the central bank's 2 percent target, leading to the high rates remaining at a two-decade high of 5.25 percent to 5.5 percent.

Read more:How to Calculate How Much House You Can Afford

"What's changed the cost of housing is the rapid increase two years ago in interest rates," O'Leary, one of the stars of ABC's hit show Shark Tank, said recently during an interview with Fox News. "The anticipation was rates would come down. In fact, only 12 months ago we were thinking seven rate cuts of which none have appeared because inflation remains rampant, we are still north of 3 percent. So housing has adjusted based on a very simple equation to interest rates and they are high or higher than they were."

Newsweek contacted O'Leary for comment via his website on Tuesday.

Mortgage rates are at nearly 7.2 percent, according to Mortgage News Daily, nearly double where they were just four years ago pushing housing costs by 30-40 percent, according to O'Leary.

"It's really hard to see that change. I am not sure that's gonna change at all," he said.

Home prices have also been partly affected partly by demographic shifts that took place during the COVID-19 pandemic. A number of Americans gained the ability to work anywhere across the country as offices went into lockdown and remote work became more available, pushing up home prices.

Read more:How to Get a Mortgage

The median sales price of a home has risen to nearly $421,000 as of the first quarter of 2024, which is close to $100,000 more than it was at the same time four years ago, Federal Reserve Economic Data shows.

"We had this weird outcome of the pandemic where people started to move away from metropolitan areas into areas where they wanted to live and get better schools and everything else," O'Leary added. "The price of those houses in rural regions went way through the roof. It's a new America. It's a digitized America and housing is more expensive."

Despite the costs, O'Leary remains bullish about real estate as an investment.

"Real estate has always been a good investment for 200 years, that's proven out over history," he said.

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