MARCH 22, 2024 – The following is from an article by Gabriella Cruz-Martinez of Yahoo Finance on March 21st:
“Sales of previously occupied US homes gained momentum in February as buyers accepted the new normal of higher mortgage rates.
Existing home sales surged 9.5% in February from the month before to an annualized rate of 4.38 million, the National Association of Realtors (NAR) reported Thursday. That was almost 6% higher than a year earlier and marked the largest monthly increase in a year.
Sales picked up last month, even as mortgage rates flirted with 7%.”
My June 15, 2023 post titled “CAN PEOPLE AFFORD 7% MORTGAGE RATES?” appears to have been accurate and played out as I predicted. I will simply show a few quotes here. You can revisit the post if you want to read it in its entirety.
A side note, the S&P HomeBuilders Index is at all-time highs. It is up almost 75% since the October low. Even with the supply of new homes soaring, the market has no worries of a housing bust occurring this year.
Shalom,
The Mann
Excerpts from my June 15, 2023 post:
JUNE 15, 2023 – YES! The simple answer is, of course!
I saw a survey this week where people said they needed mortgage rates to drop to about 4% for them to afford a new house. As my friend The Red-Shoe Economist, KC Conway, would say ‘I call BBQ-Sauce!’
People can afford a 7% mortgage rate. They can afford a 10% mortgage rate! Us old-timers remember when a rate below 10% was a bargain.
By this time next year when the world realizes the day of artificially low interest rates is history and will not return, they will simply adjust to living with 7%-8%+ mortgage rates and supply and demand analyses will work the same as they did before. People adjust. They always have. It’s just easier to complain before facing reality and adjusting the way they do things. Human nature.
Tag Archives: mortgage rates
CAN PEOPLE AFFORD 7% MORTGAGE RATES?
JUNE 15, 2023 – YES! The simple answer is, of course!
I saw a survey this week where people said they needed mortgage rates to drop to about 4% for them to afford a new house. As my friend The Red-Shoe Economist, KC Conway, would say ‘I call BBQ-Sauce!’
People can afford a 7% mortgage rate. They can afford a 10% mortgage rate! Us old-timers remember when a rate below 10% was a bargain.
People buy a mortgage payment. They do not buy a home price. Everyone knows that. So, all people have to do is adjust the price downward (and the mortgage amount is obviously based on the purchase price…for simplicity, I will assume a 100% LTV since people do not put much money down).
Let’s say someone can afford a $2,000/month PITI (for now, assume no escrow). At a 4%, 30-year mortgage, they could buy a $418,922 house. Technically, a higher price if the LTV was less than 100%.
At a 7% mortgage rate, the $2,000/month PITI can buy a $300,615 house. The point is they can still afford a house at a higher interest rate. They just have to adjust the price category they look at. They do the same thing when interest rates go down – they look at houses pricier than they really need. Well, adjust in the other direction when rates go up! Life is so simple.
Also, one major benefit to the above that gets overlooked is it is alot easier to save for a down payment on a $300k house than a $420k house! People have a much easier time of getting into a new house when they adjust their price target downward.
Combine the above with a low inventory and you probably have an explanation for home prices rising every month this year. Demand remains strong. People can afford houses at the new interest rate level.
Lastly, I find the argument that the public cannot afford a house payment at 7% interest weak when they can afford to run up their credit card debt at 18.99%-26.99%+ interest rates!!!!!! Another way to more easily afford a mortgage payment at current rates is to not have credit card debt! Adjust your way of living. It’s that simple.
By this time next year when the world realizes the day of artificially low interest rates is history and will not return, they will simply adjust to living with 7%-8%+ mortgage rates and supply and demand analyses will work the same as they did before. People adjust. They always have. It’s just easier to complain before facing reality and adjusting the way they do things. Human nature.
Shalom,
The Mann
HOUSING AND AN ITEM OF TRIVIA
APRIL 19, 2023 – Let’s get the trivia out of the way. India has surpassed China in population. I didn’t know it was even close. Sort of reminds me of the day about 30 years ago when WalMart surpassed Sears and KMart (you youngsters are asking what is Sears and KMart 🙂 ) on the same day to become the #1 retailer. As for the housing market…
Freddie Mac said the 30-year mortgage rate declined for the 5th straight week – now at 6.27%. It is like pulling teeth to get it below 6%. But, regardless, it has been lower ever since the day I called the high last year.
According to the American Enterprise Institute (AEI), home prices increased for the 3rd straight month. This follows monthly declines from July to December 2022. As I have noted many times, the market predicts the future 6 months out. As an aside, I heard an analyst today say the market does not predict the future. It is people like him that I need so I can have someone on the other side of my trades:)
So, in regard to housing, the market peaked in December 2021. Thus, it said the housing market should peak in June 2022. If you read my posts last June, you will see I was screaming that a top was occurring by the very minute.
After a 40% decline, the same indicator bottomed in June 2022. Thus, predicting a bottom for housing in December 2022. Is it coincidence that the AEI home price index bottomed in December and has gone up for 3 straight months? Sure, let’s call it coincidence:) As an aside, the same indicator is up 35% from its low.
This is a great lesson on how the market takes advantage of the public. At the end of 2021, the smart money cashed out and enjoyed a 40% decline in housing stock prices. All along, the public was hearing every day how strong the housing market was. Then, for the 2nd half of last year while the public was hearing how the housing market was crumbling due to rising interest rates, the smart money made 35% on housing stocks rising. It is such an easy game to play. As long as the public always follows the news…and it will.
So, remember, this Fall the news will change from being negative on housing to being positive. Suddenly, the public will have found a way to sell their houses that had a 4% mortgage rate and buy a house at a 7% mortgage rate. Remember, the market predicted that news today – 6 months before you hear it from the pundits. Also, this is not the first time in history that people owned homes with mortgages at x% and years later had to sell and buy a home at a mortgage rate of X+3%. People adjust. Just buy a lower price home! Everyone acts like this is the end of the world having mortgage rates 3% higher. It isn’t. The sun continues to come up in the East every day.
As I mentioned last year, the decline in housing prices would be less than expected because of a lack of inventory. According to Redfin, the number of listings has declined at a double-digit rate for 8 straight months! Geez, are there any homes for sale anywhere! According to the NAHB, 1/3 of homes for sale are new construction. The norm is 10%. Do you think the market knew that would be the case when they started buying housing stocks last June? Yes, of course.
I said last year the public and pundits would be baffled by home prices not declining much, if at all, while the average mortgage payment was up 50%. Logically, home prices need to decline 33% to keep the mortgage payment the same. That has not and will not happen.
All of the above is explained by Socionomics (not the same as socioeconomics). Thankfully, I started following Robert Prechter 43 years ago and watched him develop the Theory of Socionomics. No matter how much is published on the subject, the public just will never learn to do the opposite of what they have been doing for thousands of years. I am sure you can find Mr. Prechter’s books on the subject on Amazon, eBay, etc. If you want to change the way you look at everything, look into this subject.
Lastly, I want to mention an interesting conflict in indicators that will play out this year with one side or the other being wrong. The stock market bottomed last October (so 6 months later is right now and I saw a survey that said the public is the most pessimistic about the future that they have ever been….of course, if you follow the stock market you knew that would be the case 6 months in advance!). It is up about 20% from its lows. It continues to say no recession this year and, in fact, the economy should improve. Now, the opposite is occurring with the tightening credit market. Virtually ever recession has been preceded by banks tightening credit. This indicator is screaming for a 100% certain recession in the second half of this year. So, either the smart money is wrong or this indicator will fail this time. Something has to give. I bet on socionomics and the smart money (aka stock market). Which side are you betting on?
Til next time…
Shalom,
The Mann