There are certain things that are just true. Spandex bodysuits shouldn’t be worn by most people. Mullets probably shouldn’t come back in style. And mortgage rates right now are just too low.
The truth: Mortgage rates this low have helped create a chaotic housing market and they need to go up. I tweeted this yesterday and while there was some great discussion about housing trends, literally nobody disagreed about rates.
Image above from Freddie Mac.
Downplaying demand: Throughout the pandemic the housing narrative has tended to focus on the supply side of things by saying, “The issue is we don’t have enough listings.” I get it because we definitively need more listings and we’re absolutely feeling the effect of years of lackluster new construction. But often it seems like we’re ignoring the demand side of things because we’re so fixated on supply. The reality is one of the big reasons the market feels as aggressive as it does is because rates have juiced demand since they’ve been hovering around three percent since July 2020. On one hand it’s great to see so many buyers entering the market, but rates this low have been like a steroid to help the market feel like an auction. Having 20% price appreciation year-over-year in Sacramento and California doesn’t seem sustainable for the long haul either. On a national level Altos Research states prices are up 17% from last year.
Up and down: Recently mortgage rates started to increase and we saw a few weeks in a row with fewer purchase applications in the United States. But then rates went down again and we saw purchase applications increase. This tells us what happens with rates DOES matter for the number of buyers and if we want the market to become tamer we simply need rates to increase. This won’t solve all our problems or the housing shortage, but it would at least be a step in the right direction. Check out the Mortgage Bankers Association for weekly updates on purchase and refinance applications.
Closing thoughts: Look, there are many reasons why the market is the way it is today and it’s not all about rates. I’m just saying at some point I think we have to admit it feels pretty unhealthy to have rates this low because it’s making things too chaotic.
Q&A Video: Here’s ten minutes of Q&A I did at the end of a presentation for SAFE Credit Union. Enjoy. Or not.
NOTE: This post was in no way meant to offend anyone who wears spandex bodysuits or has a mullet. Be yourself.
Thanks for being here.
Questions: What do you think of the points above? Anything else to add?