According to Freddie Mac, the 30-year fixed mortgage rate is 7.09 percent. That’s the highest since April of 2002. Let’s discuss the practical implications and the inflationary mess the Fed made.
The Freddie Mac data is weekly, ending Thursday.
30-Year Fixed Mortgage Rates MND vs Freddie Mac
I believe the MND rate is more accurate and it is published daily.
Median Home Price
The median new home price is $415,400. The median price pre-pandemic, February of 2020 was $331,800.
Are you getting any more house now for the extra $83,600? I highly doubt it, and if not, it’s the result of Fed-sponsored inflation.
Assuming 20 percent down, let’s calculate the monthly payments from the Mortgage News Daily Widget then vs now, assuming a person was able to refinance at 3.00 percent or lower. That was easily doable with rates dipping all the way down to 2.65 percent.
Monthly Payment on a Median-Priced New Home Pre-Pandemic vs Now
Anyone buying a new home today, putting 20 percent down has a monthly payment of $2,294 compared to $1,119 in 2020.
The math is much worse and more precise for existing homes.
Case Shiller Home Price Indexes
The Case Shiller national home rice index was 334.6 in February of 2020. It is 478.8 as of May 2023. That’s an increase of 144.2 points, 43.1 percent.
A home that cost $400,000 in 2020 now costs $572,385. Bear in mind, this price is for the exact same house. Let’s crunch the numbers again.
Case-Shiller Mortgage Rate Example
For the exact same house, pre-pandemic vs now, with 20 percent down, assuming a refinance at 3.0 percent, the mortgage payment has risen from $1,349 per month to $3,161 today.
The Fed does not count this as inflation. But what the heck is it? Chopped liver?
It’s no wonder existing home sales are in the gutter.
What a Mess the Fed Made
The Fed, hoping to increase inflation, forced down mortgage rates below below 3.0 percent. Existing home owners refinanced lowering their monthly payments. This put extra money in the hands of people for as long as they hold that mortgage.
This extra money fuels demand every month.
But millennials and Zoomers now looking to buy their first home have seen mortgage payments double or even triple for the very same house vs 2020. And home prices were not even cheap then as the Case-Shiller chart shows.
Inflationary forces are in full swing.
Yet Another Biden Regulation Will Increase Costs and Promote More Inflation
In addition to the extra money padding existing home owner’s wallets, the Biden administration is doing everything it can to stoke further inflation.
Inflation Promotion Everywhere
- The EV push is inflationary
- Clean energy tax credits are inflationary
- Cap and Trade is inflationary
- Deglobalization is inflationary
- Tariffs and sanctions are inflationary
- Push for more unions is inflationary
- Student loan forgiveness is inflationary
For discussion, please see Yet Another Biden Regulation Will Increase Costs and Promote More Inflation
The Housing Bubble, as Measured by Case-Shiller, Is Expanding Again
For the latest on existing home prices, please see The Housing Bubble, as Measured by Case-Shiller, Is Expanding Again
A secular low in bond yields is firmly in place.
A longer term chart of 30-year mortgage rates from 1910 exhibits the historic distortion of the Fed’s recent zero rate policies.
After 1910, decades of 5-6 percent 30-year mortgages were common.
The influenza pandemic of 1918, which claimed the lives of 25-50 million people, mortgages did not dip below 5 percent. (Double the mortgage rates during COVID)
Mortgages fell below 5 percent in the 1940s, but never below 4 percent.
Due to the Fed’s low-rate peg of Treasury notes to 2.5 percent and .375 percent Bills. That decade saw 70 percent inflation.
Mortgage rates stayed above 5 percent until the mortgage crisis of 2007. Bernanke’s QE dropped 30-year mortgage rates below 3 percent in 2012. Low rates inflated new home prices to pre-crisis levels by 2013. Which motivated Bernanke to hint at ending QE. And mortgage rates jumped to 4 percent.
During most of election year 2016, Yellen’s policies lowered 30-year mortgages below 3 percent, spiraling housing and stock prices to all time highs. After the November elections, where Hillary lost to Trump, rates spiked up 60 percent by the end of that year.
Powell’s wider stance on balance sheet reduction in 2019 took mortgage rates back down to 3 percent. Then the pandemic of 2020 dropped rates further, to more than a century historic lows.
Mish, At the end of the article you talk about a payment now versus a payment in 2020 and how that creates monthly demand and inflation. I think that is partially true because most people are payment shoppers and will buy the most they can afford. I live in a uppper middle class neighborhood in Richmond, VA. Our neighborhood was turning over from people like us in our 50’s to couples in their 30’s with young kids. Most of these couples would not have been able to afford to move into this neighborhood without the low rates. The young couples got more house in a better school district for the same payment and the older couples cashed out and, either retired or moved to something smaller, and invested the gain. We used if for a downpayment on a beach house in Florida.
“Are you getting any more house now for the extra $83,600? I highly doubt it, and if not, it’s the result of Fed-sponsored inflation.”
Exactly ditto many/most California beachfront houses and 1960. Except, those were much more valuable back then, when they cost $30K. Vs $2+ million today….
Like all manufactured goods, houses are depreciating items. Unless you happen to find Hope diamonds in your yard, they just wear down, getting less and less valuable as time goes by. Both because of wear and tear, and because improved building technology makes them cheaper to replace even for even. No different from any other good.
It is ONLY because houses has been chosen as THE means by which most totalitarian regimes redistribute wealth; FROM those who are able to produce value, TO useless dilettantes with no other “talent” than regime closeness/brown-nosing and -dependence; that the illusion has taken hold, among the less-than-economically-literate, that “housing” is somehow “diiiiferent.” Just like the same group of well indoctrinated gullibles, can be counted on to equally reliable fall for the illusion that things are similarly diiiferent when “our” Dear Leader bombs some country, than it is when Dear Leader Putin does so. Etc., etc.
Don’t forget that stocks are “different” too!!!
.
Market value no longer has anything to do with book value.
.
It’s not just the absolute level of the mortgage rate that determines demand, but that together with the mortgagees opinion on the ability to repay.
When rates were very high in the past, lenders might typically lend 3 times salary, whereas with very low rates it crept up to 5 or more times salary, thus enabling disproportionate rises in house prices.The longer rates stay high or rise, the more likely lenders will begin to tighten their lending criteria by reducing the multiple, so even if you need a mortgage it’ll get tougher, regardless of whether you think you can afford it.
This was the case in the UK, I presume it’s similar in the US?
dead on correct. and so many great comments following Mish’s greatest skill level at analyzing r/e. i’m glad to see Mish came out of the darkness of insanity of deflation, to the light of reality of insane inflation of currency and debt which jacked up everything……….. i hope you stick with the 12 step program on your recovery. please LOL.
Integrating the paradigm for the creation and distribution of new money (Direct and Reciprocal Monetary Gifting) into the current monopolistic paradigm of Debt Only system , ends the monopoly, fixes all of this monstrous housing inflation, implements BENEFICIAL price and asset deflation, doubles everyone’s purchasing power, greatly increases demand for every enterprise’s goods and services, enables huge tax decreases and even tax eliminations and frees and awakens us from the human civilization long acculturated unconsciousness that Debt Only has oppressed us with. And all it takes is strategic implementation of a new idea via the accounting functions of equal debits and credits summing to zero.
It’s insane that the monthly payment goes from $1349 to $3161. $1349 used to buy a typical 2500 square foot house. Today it only buys 1,088 feet.
The hardest part for many is scrapping together a down payment, which is now $20,000-30,000 higher.
Mish,
In the future can you add a third column to this type of analysis?
It would say “what the house price must fall to in order to keep the monthly payment the same”
When I have done that it typically shows a dramatic drop in the house price. I think that is where we are headed but it will take a long time to get there!
Yeah, and a fourth column entitled: “What your wages must rise to in order to afford the new monthly payment.”
Taking the higher taxes into account of course.
I live in a suburb of Orlando…5 miles from downtown. Central Florida is BOOMING with construction. We’re not talking a few homes here or there…we are talking about major developments with 3,000+ homes going up north, south, east, and west of the city core. I watch a youtube channel of a realtor that covers all of the goings on in the area. I am amazed at the comments from people that watch his channel. Most of the commenters are planning or have already bought in the area.
These people are from UK, Australia, Brazil, central America, AZ, CA, TX, NJ, IL, NY, MA, VA, etc. etc.
I am dumbfounded why everybody is moving here. Most mention Disney, but I think that would get tiresome in short order. Can’t see waiting in line for a ride in the heat we are having this summer.
They’re preparing for the mass exodus of retirees from the communist states.
That has already started.
I live in W. Central FL (about 30 miles SW of The Villages) and the same thing is going on here. The development that is planned for the next several years here is off the charts.
Are you near Dunnellon? Nice area….kayaking the Rainbow River is a real treat.
Florida is blessed with lots of flat land easy to build on. My family moved down there in 1968 and it was a wild wonderful wilderness. Florida is filling up but still is good.
Interest rates might go higher, but SPX is turning around since June 16 high.
Option #1 : after a lightweight correction to 5k/5.5k, for funfunfun.
Option #2 : after reaching march congestion area the new distribution count might expand all the way to Dec 2022 high ==> heavy duty recession.
The first mortgage payment comparison quotes Feb 2000 instead of the intended 2020. Are the data incorrect or is it just mislabled?
Mislabeled and chart corrected
Numbers and calculation correct
If you’re going to blame the FED then by default you must blame Congress, for they created this monster.
Right. Congress turned the nonbanks into banks, creating the S&L crisis. So, the bond market was left to fund housing, making Freddie and Fannie dominating the markets. All this was predicted in May 1980, along with the GFC to follow.
Bernanke destroyed the shadow banks, bankrupting half the home builders. The remunerating of IBDDs suppressed interest rates stoking asset prices.
Powell eliminated legal reserves stoking C-19.
The prospect for housing prices is pre-determined by long-term monetary flows, the volume and velocity of money. Only if the FED continues with QT will housing prices continue to fall.
The prices are dropping in my area but this is due to big companies swooping in during the pandemic and over paying for older homes. Some of them have been on the market going on a couple years. I went look at one as an investment where the price has dropped 60K since it first hit the market.
The drop got me interested but it still has a way to go. It will come down another 50K before they finally cave and dump it. It needs a 100K refresh just to turn a small profit which none of these companies are going to do. The funny part, whoever sold it could buy it back and make 60K plus. All for moving out for a year and change.
Geriatric Joe and his puppeteers at the WEF are getting exactly what they planned – you will own nothing and be happy! Any debt forgiveness offered is only paving the way for Govt defaults.
Toot toot!
Look at the down-payment requirement NOW compared to 1984, when we bought our First home: 3beds/2baths, $114,000 in Gilroy, Ca ( I was commuting to my mid-Level Management Job in the Silicon Valley. NO KIDS. Two cars, both paid for. We only needed $10K or so, not including Closing Costs. We did it (I had the Cash)….sold it two years later for $174,000 and moved into a MUCH larger Home in Morgan Hill for $304K and 10% down was STILL only $30K – – parlayed from the first home. I was easily then making $200K a year as a VP (Founded a new Co. with four Partners). We sold that Company (Publicly) in 1992 and I retired with Millions Banked (Retained earnings, and I STILL had 100,000 Shares of unsold Stock options). I am now over 70 and never worked again.
Interest rates will go higher. I think the Fed is seeing the price of housing as having become a type of existential crisis not only has it is cut off large swaths of the younger population from ownership, it has encouraged the formation of a very large rentier class of large corporations who have bought their real estate using borrowed money at rates individuals cannot obtain. Since land is not being made anymore we are setting ourselves up for a positive feedback loop that will bring us to a situation of the have and the have-nots and if you don’t have it now you never will. The aim of the interest rate hikes is not to squeeze out the individuals specifically but to cause the large corporation who have moved into residential real estate to lose money and a lot of it. They are the marginal buyers and they determine the prices. They have borrowed a low rates but they are variable rates so they are hurting now and hope that the Fed will save them but the Fed won’t. I am starting to believe that the Fed will crush them instead. If we look at China we see that too much money going into real estate is a very bad thing. We are far from that but it does show us the dangers lurking in the shadows.
I tend to agree with your point there Doug.
I also think that the Fed realizes that totally out-of-control Federal deficits are a major contributing factor to inflation. Higher interest rates will eventually put a limit on the non-interest portion of the Federal “Budget”. This will inevitably lead to a showdown between the spendthrift federal government and the Fed. If Powell sticks to his guns and keeps raising rates, there is a good chance he will find himself out of a job sometime in 2024.
In construction, multi family with 5+ units, a new all time high.
We all knew prices would go up across the board when the stimie check carpet bombing started. I do have empathy for young adults trying to find affordable places to live right now but there is another component I have just become aware of talking to some of them.
It’s not so much they can’t afford a place. They can (the ones I talked to). It’s they don’t want the places they can afford. Easier to live at home and complain they can’t find a cheap place where all the action is downtown. If you mention buying a small fixer upper or staying at a mobile trailer park until they can afford to buy a small place it’s like getting scoffed at by a French king.
Keep those mortgage interest rates climibing. We’re looking to buy new construction when we retire. The builders will be forced to come down on their prices to get rid of supply. This is a great time for all of us that have lived within our means and saved money. CD rates are also good for retirees looking to make money.
From what I’ve observed the builders are not dropping their prices but are willing to buy down the interest rate to avoid bad comps. That’s a better deal for folks financing than it is for those looking to pay cash.
Home builders just build smaller cheaper homes to maintain sales and profits.They can’t afford to sit on vacant land. Home buyers can apply for FHA loans, lowering their down payment.
This comment relates to the function of high mortgage rates and high real estate prices on the building industry. There may be a housing shortage, but builders will not sell (or build) as many houses if they cannot sell them. Perhaps housing prices will decline at that point.
Hi Mish, the dialog box “Monthly Payment on a medium priced pre pandemic vs now” shows the year 2000, just an FYI
Thanks
As can be seen from the first chart, a 7% mortgage rate is a generally OK mortgage rate since the early 1970s.
So any problems relate to housing costs relative to income. We know income growth has been subpar since 1973. This has not much affected housing because of the multi decade bull market in interest rates.
Now the bull market in rates is over and we are left to contend with real issues of cost and income. Will take time – years – to work through.
7% on an inflation bloated asset is not the same as 7% on a non-inflation bloated asset. Inflation is the high blood pressure of economic realities. The Silent Killer.
The problem is also related to how much a home buyer has in savings for a down payment and how much of the budget goes toward outstanding debt. People had better personal finances 50-60 years ago, and Government debt as a percent of GDP was much lower as well.
I think housing is going to be in a long term downtrend. People are starting to retire in mass and will be selling their homes and there won’t be enough buyers to absorb the inventory. Renting has become very risky. Seems the renters have all the rights now. Once local governments have shortfalls, real estate is going to be an easy target. You can’t move a home out of a jurisdiction. You either pay what they say you owe or they take possession. Once it starts going down, the downside will start snowballing.
The problem is we still have a shortage of housing stock relative to population based on historic ratios. Those people selling their homes and trading down still need to live somewhere, and retirees tend to have fewer people per household than younger families implying those historic ratios when you had mom, dad, and three kids understate current needs.
I tend to agree we will see a downtrend in home pricing, but for a different reason. Houses are simply too expensive relative to the incomes needed to service those mortgages. We will need more homes, but they are going to have to be cheaper.
This is a very bad age pyramid for future housing prices
https://www.populationpyramid.net/united-states-of-america/2022/
People are going to be getting rid of homes at the same rate as first time buyers. Yes, people have to live somewhere, but that somewhere isn’t always their next home. It’s frequently a relative who can look after them or a retirement community.
A retirement community is already included as part of the housing stock, unless you mean a skilled nursing facility or something in which case I’m not sure. I guess people might move in with relatives en masse. I’m skeptical of that. We will see how it plays out.
Huge population percentage drop off after 65, more so after 75. Oldest Baby Boomers are 77. Boomers are not living as long as their parents due to gluttony and poisoned environment and food. Things are going to be up for sale big time in the coming years.
Sadly this crescendo of death started in 2020 and was falsely ascribed to Covid.
Sorry KidHorn, demographics say otherwise. Even though boomers are “aging in place”, they will eventually sell their homes. There will be a steady supply of Millennials who will be willing (and hopefully able) to buy. I believe demand will come back once rates return to normal (5%-ish). That wont be until Q4 ’24 or later.
Most retirees do not sell and move. Most age in place. Concerning property taxes, remember Prop 10 in California that limited property tax increases until the house was sold.
Very valid point. It doesn’t make sense for retirees to downsize if their tax bill ends up being the same or even more especially if you live in a nice area since if you sell it is unlikely you will find something reasonably priced in the same area. You do the math and staying in the oversized house makes sense.
A lot of them are forced into retirement communities or pass away. Many move in with relatives.
That’s prop 13, which ends up being a very good law that helps people age in place. In NY you are forced to leave with constant assessment bump ups. At the very least it’s a good control on government overstep and taxation which is it’s first answer to everything
Its the exact opposite of what you say.
Instead you get 2 classes of people. One with absurdly low taxes and another over taxed to make up for it.
Whats worse is the low tax guy has zero incentive to vote out bad government since they aren’t taxed to pay for it. If prop 13 didn’t exist, there would have alresdy been a voter backlash over taxes.
That’s one state out of 50. And even then, property taxes keep going up in California. The government can also get homes with higher utility taxes.
What about those open borders and millions of people coming illegally you keep harping on? where are they going to live?
I recall in the 80’s an advisor said that there are entire decades in which real estate is not a good investment, meaning, property prices do not increase during the time you own your home. Looks like that may be true for the coming years.
There’s $17B & $85B in Silent Generation & Baby Boomer wealth that will passed down over the next 25 years or so. That’s a lot of money and is easily a major X Factor when predicting which direction housing will go.
As I’ve posted many times before, I don’t think it’s the wealth transfer that’s going to provide the kind of price buoyancy that most people expect but rather Congress’ / Fed’s reaction to the next recession or 2 or 3.
The Pandemic firmly solidified the grotesque response on the part of the Fed & Congress to throw money at social problems. Modern Monetary Theory is now the law of the land, and that means widescale foreclosures in economic downturns are a thing of the past.
That’s at least until the bond vigilantes come out and turn on US Treasury debt and demand higher interest rates for the increased prospect of profuse government spending remaining unchecked.
I’m hopeful that we’ve entered the early phase of this recognition on the part of the US Treasury bond market.
Kid, that’s why it’s stupid to pay off a low interest mortgage.
You don’t own the house, you own part of the note as a partner with the bank.
The Township owns the house and rents it to you.
Don’t pay the taxes and you’ll see who the real owner is.
Worst advice you’ll get in an entire lifetime.
Just not enough room to list all the things you can do over a 30 year period investing the money that would be tied up in a paid-off house.
Only pay off or refinance a very high interest rate mortgage.
The rich love to see folk’s money tied up in a home.
In Colorado Springs, explosive growth in home building continues unabated. I continue to be amazed at how resilient the housing market is here. Dozens of new city streets and hundreds of new homes added every year in a frenzy of construction, expansion, and congestion. Prices have soared to DINK levels IMHO; I don’t know how people are qualifying for, and purchasing at these nosebleed levels.
Rando I live in the springs and just sold my house at a higher price than I expected.
Trouble finding rentals though.
Don’t know when this market will finally crack but it is resilient!
I read where some builder bought 159 acres around Fort Collins for $33M and plans to build 230 luxury homes. That’s over $207K per acre before they start making improvements. So that cost could easily double to $400K per acre before the first home is constructed. I can’t imagine these houses will cost anything less than $1.5M.
Because of DOD spending. US Space Force HQ is there. USSF budget is doubling every other year, well paid govt engineers.
The millenial generation should be renamed to the apartment generation.
Wait till Medicare/Medicaid and Social Security start the process of full fledged insolvency in 2028 and 2030. The apartment generation will get the last laugh on the previous generations saddling them up with untenable debt.
Debt is indeed the new slavery.
Happy Friday
Debt is not the new slavery… debt is now beautiful if you can get it because Bidenflation will pay it down for you through inflation… we should be much more worried about deflation.. that would horrific due to high debt levels.
The possibility of deflation is not worthy of consideration. As the federal government has proven, rounds of stimulus payments would end deflation before it even got started.
And this is why big hedge funds and small investors (like me) have been buying rental properties. With prices sky high to buy, people are forced to rent, I raised rents and got no complaints because people know the alternative out there.
But now the prices of houses are too high and the cap rates don’t make sense compared to T-bills so I’ll just wait until the numbers make sense again. Housing is correcting but I think mortgage rates need to go above 8% to really get things moving in the right direction.
For every Fed action or crisis there is a way to profit. It was housing a few years ago and it’s T-bills now. Got Strategy?
“Housing is correcting but I think mortgage rates need to go above 8% to really get things moving in the right direction.”
How exactly is housing correcting? Mish’s CSI clearly shows that over the last 4-5 months, sales prices are increasing. Sure, we can agree that rising mortgage rates is a good thing, but for now at least, the housing market doesn’t seem to care.
And why is that? We’ll it’s damn obvious. Virtually NO ONE is getting a 30YFRM these days. They’re getting some sort of temp fixed / ARM with a buy down from the builder. How can builders afford this? Well, the big boys are still sitting on really high gross margins, easily in some cases as high as 40%. When will the first wave of buy downs start to reset? I dunno? Probably sometime in the next 6-9 months. If the FFR stays above 4.5% though 2024, I’d say the housing market will be in for a rude awakening for all those that have bought since last summer.
The Fed has completely screwed up housing. And even worse, Elizabeth Warren will be a raving lunatic for rent & mortgage relief once a recession gets here. So we should all get used to really unaffordable housing and high interest rates for quite sometime.
The Austin, TX real estate market has corrected about 15% so far. Wolfstreet had a post about San Francisco correcting 30% so it all depends on what market you want to talk about. Nationally (and on average) the numbers don’t look like they are correcting but they are in some areas.
And Mish hasn’t exactly been right about inflation being transitory, the fed not hiking and the coming recession, no one can predict the future, we can just take the data and analyze it and extrapolate some forecasts.
https://wolfstreet.com/2023/08/17/san-francisco-house-prices-plunged-faster-29-in-16-months-of-this-housing-bust-than-in-the-first-16-months-of-housing-bust-1/
That’s why I never became an apartment landlord. I just don’t have the balls to go in and tell a single mom just scraping by to find another place and soon. Yeah, I know, imperfect capitalist. Sorry.
Their a way to control that deb situation. Live below your means and save first then invest. It’s called “delayed gratification” a thing that makes humans different from other animals (except maybe for squirrels).
Medicare has not much time left, I would say closer to 1-2 years Max
Well what can we do, democracy is a scam. Inflation is hurting our ass and now we have a demented puppet president who can’t even speak properly. The future generations are getting influenced by stupid music and culture and soon most kids would give up studying to pursue stupid youtube or tiktok video.
“Debt is indeed the new slavery.”
Touche!
Which is exactly, and the only reason whatsoever, why “we” have central banks.
“The millenial generation should be renamed to the apartment generation”
The millenial generation should be renamed to the housing subscription generation.