Carrie Goldstein's dream for a new home started with a family reunion at her cousin's home in Milwaukee. The home was old with character and she could walk anywhere from the front door.
"We were kind of in awe and drooling over her walkability," Goldstein says.
It was the lifestyle Goldstein wanted but lacked in her Cleveland suburb, which she says is also pretty walkable – with one major issue.
"There are lots of sidewalks," she says. "But you can't really go anywhere."
She brainstormed with her husband and realized nearby Rocky River was where they wanted to live. It was still a suburb, but with a quaint downtown and the option to walk to Lake Erie.
But as much as she wanted to move, one thing stopped her cold. The mortgage she would have to pay. Mortgage rates have hit their highest level in almost three years, making buying a home impossible for many people at a time when housing prices are also sky high.
Goldstein is running into a problem that's affecting many households at a time when people have already been struggling with years of high inflation: The rising cost of borrowing.
Bond markets influence all types of borrowing costs across the economy – and as yields have surged to their highest in decades, they've pushed up all kinds of interest rates paid by consumers, from loans for homes to cars and higher education.
And those rates are likely to continue moving up after the Federal Reserve in September raised interest rates for the first time this year – while signaling an additional hike could come this year.
Rate hikes from the Federal Reserve filter through the economy and are meant to slow down consumer and business spending by making people hesitant to take out a more expensive loan to pay for a car or a home – both essential purchases for many people.
"If you need to borrow, boy, it's really not a good time," says John Diamond, senior director of the Center for Tax and Budget Policy at the Baker Institute.
The housing market remains in the slumps
Buying a home is a key example of how households are affected when borrowing costs rise in the economy.
While mortgage rates were falling at the start of this year, they reversed upward after the U.S. war with Iran spooked the bond market by raising worries about inflation. As a result, mortgage rates, which are influenced by the bond markets, have surged this year.
For example, at the current 7.28% level for the average 30-year fixed rate mortgage, a person could end up paying about $900 more a month compared with the 3% pandemic-era rates for a median priced home.
As expected, fewer homeowners are willing or capable of making that financial leap, even if they have long since outgrown their current home. Existing house sales in August were down about 1.2% from a year earlier, according to the National Association of Realtors.
Car loans are about to get more expensive
It's not just mortgage costs that are making Americans like Goldstein wince.
Alongside her dreams of owning a home in a walkable neighborhood, Goldstein is ready for a new car. Her old one is 11 years old, has 150,000 miles and plenty of quirks. The repair costs are approaching the point where they'll be more than the value of the actual car.
But a four-year loan for a used car is about three percentage points higher compared with the start of 2022, right around when auto loans began to shed their pandemic-era low rates and started climbing up.
"You can't go and get a car for $150 or $180 bucks anymore a month," she says about the car payments she would be facing.
Although so far the Fed has only delivered a modest quarter of a percentage point, it's adding to the higher borrowing costs at a time when households are already dealing with inflation and higher prices for other types of borrowing.
"It's added to higher mortgage payments. Higher student loan payments. Higher prices because of inflation," Diamond says. "That's what makes it really painful."
And that could mean that households could continue to delay any big purchases requiring a loan.
Goldstein is one of them. She says she can afford to wait on the car and house. But eventually she unsubscribed from real estate updates for that walkable suburb.
"It just became more and more disheartening when I did the math," Goldstein says. "It's just not in the cards."
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