A Crash Of The US Housing Market Is Unlikely Even As Mortgage Rates Surge To 14-Year Highs

0
184

Altos Research CEO Mike Simonsen said This Week in Real Estate that with demand falling but not cratering, and supply of homes available for sale remaining depressed, a US housing crash remains unlikely. “The supply of homes for sale is just too short for the market to tank hard,” concluded Simonsen. Total inventory is far from the peak levels we saw in 2007 of over 4 million listings. Currently we are at 1,310,000. Serving as an additional buffer is the $29 trillion in US homeowner equity, according to the Federal Reserve. Below are a few newsworthy events from the second week of September that influence our business: 

A Crash Of The US Housing Market Is ‘Very Unlikely’ Even As Mortgage Rates Surge To 14-Year Highs. The average 30-year mortgage hit a 14-year high Wednesday, but that surge won’t spark a crash in the US housing market akin to anything seen in 2008, investment strategist Louis Navellier told Insider on Wednesday. “There are very real concerns that housing will continue to be hit hard by mortgage rates now well above 6%, though with average home equity levels very high, a housing crisis is very unlikely,” Navellier said. The total average home equity per homeowner increased to a record high of $300,000 in the second quarter, according to data from CoreLogic. “US homeowners with mortgages (which account for roughly 63% of all properties) saw equity increase by 27.8% year-over-year, representing a collective gain of $3.6 trillion, for an average of $60,200 per borrower, since the second-quarter of 2021,” CoreLogic said last week. According to the Federal Reserve, US homeowner equity totaled $29 trillion in the second quarter. That’s a significant buffer for homeowners who might be worried about a reversal in home prices. “There’s just a remarkable dearth of new listings,” Altos Research CEO Mike Simonsen said. “I expected we’d have 625,000 homes on the market now, but we only have 547,000. Currently projecting 470,000 by end of year, but that could easily be too high. With demand falling but not cratering, and supply of homes available for sale remaining depressed, a US housing crash remains unlikely. “The supply of homes for sale is just too short for the market to tank hard,” Simonsen concluded.

Are We Seeing a Mortgage Rate Lockdown? The premise of a mortgage rate lockdown is simple: so many American households have such low mortgage rates that some will never move once rates rise, which then locks up housing inventory. Typically we have a natural set of new listings each year; inventory rises in the spring and summer and then falls in the fall and winter. We are getting closer to that period where total inventory traditionally falls. However, we have entered a tricky period in housing economics where we might have to take this premise more seriously since mortgage rates recently got as low as 2.5% in 2021 and as high as 6.25% in 2022. It all started when mortgage rates jumped from 5.25% to 6.25% this year and I saw how home sellers reacted to that move. That sharp move to 6.25% caused new listing data to stall at first. However, what caught my eye, even more, is that mortgage rates made a 1.25% move lower, and the new listings data still fell. The fact that this data line fell earlier this year and was sharper made me think that this could be what a mortgage rate lockdown looks like. Traditionally speaking, post-2012, inventory growth came in years where demand was weaker from mortgage buyers: 2014 and 2022. Those were the only years we have had negative mortgage demand growth in the purchase application data. Adjusting to population, 2014 was the lowest level in the index ever, and in 2022 we have seen a noticeable hit in this index, taking it below 2008 levels. As you can see, even though purchase application is below 2008 levels, total inventory is far from the peak levels we saw in 2007 of over 4 million listings, currently we’re at 1,310,000. Now one thing that could have happened this year to push down new listing data more aggressively is simply that homes are less affordable. We haven’t had to deal with 6% mortgage rates in a long time and we have had massive home-price growth since 2020, continuing nationally in 2022. This is why 2023 will be key to the mortgage rate lockdown question. The nation’s inventory needs to get back to 2019 levels, and that will only happen with positive year-over-year new listing data going into spring 2023. The healthy parts of the U.S. housing market – where people have choices and buyers have some power again – are those near or above 2019 levels. 

6% Mortgage Rates Are OLD News. The internet, TV, and even public radio stations were buzzing all day with groundbreaking news on mortgage rates. Apparently, for the first time in 14 years, 30yr fixed rates moved back above 6%. Big news, right?! Perhaps not. Here are 2 headlines from the recent past: Mortgage Rates Jump Back Above 6%; More Volatility Ahead (September 1), Mortgage Rates Surge Well Into the 6% Range After One of The Worst Days in Decades (June 13). After initially breaking above 6% in June, rates managed a very nice recovery by the end of July. But ever since, they’ve been on the rise. So why is it suddenly big news that rates are over 6%? It’s all a question of the source material for the news. Today’s buzz is due to the fact that Freddie Mac’s weekly rate survey finally hit 6%. While that survey data is frequently stale and occasionally misleading, it’s nonetheless a mortgage industry institution (to Freddie’s credit, they recently announced they’d be revising their methodology to address these drawbacks. Here’s hoping they nail it!). Simply put, it is heavily relied upon by almost every major news organization for the week’s only dedicated mortgage rate coverage. The daily rates are typically higher at times when “points” are involved in securing the best rates because the daily rates are adjusted for points (thus allowing for an apples to apples comparison with any other point in the past).  

Take advantage of superior service and the convenience of one stop shopping for the best loan and insurance coverage to fit your needs. Home warranty coverage is available through America’s #1 home warranty company, American Home Shield.