30-year mortgage rates are near 8% with excellent credit. Interest rates have climbed for the past three months straight. The Fed is considering another interest rate increase for November and December, possibly pushing rates up to 8.5% or even 9%. The reasoning is that higher interest rates will "slow down inflation".
Home sales are at a 13-year low. Factor in the higher cost of insurance and the fact that property taxes are going up to unaffordable levels and the very high cost of labor and materials for home construction... and you have a real estate market that's going to crater.
I personally know several homeowners that had their homes listed for sale, but have removed them from the market in the past 2 months. They will wait and hold on to what they have for now. One real estate agent mentioned to a couple that they should keep their house off the market until at least middle of next year and then decide based on market conditions.
I'm suggesting that the U.S. economy is a three legged stool... and one of those legs is housing and private & commercial real estate. If it fails, the economy goes into a deep recession at best.
Yesterday The Fed maintained its target rate range, meaning no increase.
I’m no optimist when it comes to our current situation but two things to consider. 1) We already had a recession but the current “administration” refused to view it as such; and 2) The Fed will probably start to decrease the target range which should, in time, bring some relief to the housing market.
Supply and demand are such an important part of the conversation. Supply is restricted and underlying demand remains strong. The high interest rates have cooled the market but for how long?
I have long believed that we were in for a housing crash but more recently, I’ve leaned more towards a belief that the housing market has the potential to stay propped up while other markets suffer (e.g. commercial real estate or auto). No one in their right mind is going to sacrifice their low interest rates. Houses locked into the historically low interest rates will, for the most part, stay off market. That is, if we are able to avoid a deep recession due to other industries/markets seeing a collapse. Banks are another watch item having already seen some failures.
Also, don’t forget that the war machine has been spooled up and we’re headed into an election year.
I’ve seen many people say this but without the qualifying point about avoiding a dee recession.
Far too many people are overlooking the reality that the economy is interconnected.
No one is selling? Ok.
So then real estate agents don’t get their commissions.
Money being tight, the don’t buy that car or they don’t go out to that restaurant etc.
Now restaurants owner and car business notice their sales numbers decline. This goes on for awhile… after all, no one in their right mind is selling when they’ve locked in a low rate.
The situation just keeps getting worse so restaurant/car business decides they have to layoff some staff now since the economy has slowed.
Those that got laid off. They’re not making money. They start spending less too. It repeats.
Now suddenly there’s a bunch of other people in a similar position. Job market is getting tighter now- unemployment is up.
The ones that bought overpriced and with high rates are already trying to sell to stop their financial bleeding. But no one’s buying. Rates are too high and you lost a few because their job situation changed and they can’t afford a house like that anymore.
So it sits. No biggy. Mr Fixed rate is doing fine. Right?
Well. Mr. Fixed might have a credit card or car payment. And this time his luck runs out. He’s the one that’s out of a job. Banks still need to be paid. Where’s the money coke from?
“Yeah but it’s be stupid to sell”
Mr Fixed is looking at the equity and thinking “it’s grown a lot. I’d make a pretty penny on it.”
The circumstances force his hand. EXCEPT. Now he’s trying to sell at the same time the others who are drowning on their higher rate repayments are DESPERATE to get out.
The desperate sellers have started to drive price down. Mr Fixed seeing this starts to get a little worried. He wants to get out sooner rather than later before these high rate desperates drop prices further. So he accepts a lower price than he was anticipating.
Rinse and repeat with each of them getting more and more desperate to get out
If things worsen, you’re spot on. That’s why I think that housing gets hit “last.” There are other markets facing the music as we speak. We shall see. With all of the investors buying up housing, I can’t help but think they’re on the sidelines to buy when that squeeze is felt.