Real estate expert on whether home prices could come down amid Fed rate hikes

First American Financial Corporation chief economist Mark Fleming discussed where he believes home prices are going amid expected rate hikes from the Federal Reserve as a way to tame surging inflation. 

Fleming, who leads an economics team responsible for analyzing and forecasting trends in the real estate and mortgage markets, weighed in on current mortgage rates during an interview with "Mornings with Maria." His appearance on FOX Business comes as inflation accelerated to a new four-decade high in March and price hikes were widespread with shelter costs increasing 5% year-over-year and jumping 0.6% for the month.

HOMEBUYERS STRUGGLE WITH AFFORDABILITY AMID RISING PRICES AND INTEREST RATES: REPORT

Last month, the Labor Department said that the consumer price index (CPI) – which measures a bevy of goods including gasoline, health care, groceries and rents – rose 8.5% in March from a year ago, the fastest pace since December 1981, when inflation hit 8.9%. Prices jumped 1.2% in the one-month period from February, the largest month-to-month jump since 2005.

Mortgage rates dropped for the first time in seven weeks, according to latest data from Freddie Mac, with the 30-year fixed-rate mortgage falling to 5.1% as of April 28. Though the rates edged down slightly, they remain significantly higher compared to the same time last year.

The 30-year fixed-rate mortgage fell to 5.1% annual percentage rate (APR) for the week ending April 28, which is down from 5.11% the week before and up from 2.98% last year. 

Fleming acknowledged that 5% has been a "big move" and noted that the number "should curtail demand and affordability in the housing market."

HOMEBUYERS STRUGGLE WITH AFFORDABILITY AMID RISING PRICES AND INTEREST RATES: REPORT

He added that, from a historical perspective, "5% is still a pretty good mortgage rate."

"And because there’s such a short supply of housing out there, even with the reduced demand due to the higher rates, it’s still imbalanced, so prices are not expected to decline," Fleming said, noting that perhaps prices could "soften in terms of their pace of appreciation."

"But we would need a lot higher mortgage rate to actually really curtail demand to the point that it would meet supply and actually drive prices down," he continued.  

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Data released last week for February 2022 show that home prices continue to increase across the U.S. as limited supply and a race to lock in rising mortgage rates drove enticed buyers. 

According to the S&P CoreLogic Case-Shiller Index, home prices saw a 19.8% annual gain in February, up from 19.1% the previous month. 

The 10-city composite saw an annual increase of 18.6% year-over-year in February, up from 17.3% the previous month, while the 20-city composite grew 20.2% year-over-year, up from 18.9% in the previous month. All 20 cities reported higher price increases in the year ending February 2022 versus the year ending January 2022, led by Phoenix, Tampa, and Miami. 

Federal Reserve Chairman Jerome Powell late last month solidified expectations for a half-percentage point rate hike at the central bank's May meeting as officials look to tame red-hot inflation.

The housing market typically experiences higher mortgage rates when the Fed raises rates. Though mortgage rates do not follow the federal funds rate, they do typically follow the yield on the 10-year Treasury. 

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"I think, expect the expected from the Fed," Fleming said on Monday. "The jawboning has been effective, I think, at moving the markets prior to the actual things being done by the Fed and mortgage rates actually went further."

"I think they even got a little bit ahead of where the Fed and where the expectations were," he added. 

FOX Business’ Megen Henney contributed to this report.