At the start of 2022, the MND average survey rate on 30-year fixed-rate mortgages was 2.76%.
This week, the MND average survey rate on 30-year fixed-rate mortgages topped the 5% mark for the first time since November 2018.
Historically, 5% is not that high of a rate. But relative to home prices it’s an enormous rate, especially for first-time buyers.
Case-Shiller Home Price Index
Kicking off 2022, the Case-Shiller home price index continues the record pace of 2021.
For details, please see 2021 Set New Annual Records for Home Prices. 2022 Continues the Trend.
Existing Home Sales Dive 7.2 Percent Wiping Out January’s Big Month
On March 18, I commented Existing Home Sales Dive 7.2 Percent Wiping Out January’s Big Month
That decline was for February and most February sales were made in December or January when mortgage rates were mush lower.
At the end of January, the 30-year mortgage rate was about 3.68%. On March first the rate was 3.90%. On April 5, the rate was 5.02%.
Lumber Futures
Expect a Huge Housing Slowdown
Lumber futures have pulled back from recent highs but remain very elevated. That will resolve to the downside soon.
And the pending housing slowdown will impact demand for furniture, appliances, paint, landscaping, cabinets, etc.
Impact on GDP
The knock-on impacts will likely be greater, but that’s significant.
Recession on the Horizon
The Fed does not see it, but a recession is on the horizon.
For discussion of recession signals, please see The Highly Watched 2-10 Inversion Recession Indicator May Not Be the Best Signal
This post originated on MishTalk.Com.
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Mish
1.5 years ago you could get a mortgage for 2.5% for 30 years. To have it now at 5% along with very high values for a home means that would be homebuyers are priced out of the market.
2.5% on a 200k loan is an extra 500 a month. Yes, that’s absolutely a big deal.
Mortgage applications decreased 6.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 1, 2022.
The Market Composite Index, a measure of mortgage loan application volume, decreased 6.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 6 percent compared with the previous week. The Refinance Index decreased 10 percent from the previous week and was 62 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 9 percent lower than the same week one year ago.
While many will be able to afford a 38% mortgage payment increase there are many that will not. I do not know what that percentage will be, but it’s extremely obvious that many will not be able to afford it.
That means just one thing: Lower demand, probably by a large margin.
What does lower demand do to prices? We all know.
I was looking to buy 3 rentals this year. I have the money in hand to do so. However, due to the rapid increase in mortgage rates and the rapid increase in home value I’ve stuck all my investment cash in commodities and will wait for either mortgage rates to crater or prices to deflate, preferably both. If and when that happens, I’ll go back to plan A. Plan B is working out quite well for me the last two months.