Mortgage Rates AGAIN Hit New Record Highs, Are We Headed For A Housing Crisis? or Ho Hum?

Mortgage rates AGAIN hit new highs last week, closing at 5.39%.
So, what do to?

If you have been following me at all, you know that one of my main guideposts to understanding the real estate industry is that the real estate news media is even WORSE than the political news. The solution is to dig into the data to understand what is really happening.

One interesting factoid is that most major real estate industry news creates articles for the weekend on Thursday, and consistently the rates have hit new highs on Fridays. One of the most popularly reported mortgage surveys is collected and released weekly on Thursday. Additionally, this survey is a collection of rates that are closing which may have been locked in at market rates 30-45 days earlier, not the current rates available for buyers today, and in a steadily increasing market, those new rates have a built-in delay for increases. This happened again this week as I was off Friday for a holiday and rates high new highs of 5.39%, almost 1/8th of a rate higher than the previous high.

Additionally, the increased mortgage rates may be low when compared to the increases in core inflation. While mortgages have risen from 2% to today's 5.39%, the core inflation rate has risen from about 2% to 6.75%, and even that rate is at a minimum conservative and suspiciously so.

This recent increase, while alarming and shocking, is not high by historical standards. The rise in rates pales in comparison to the jump in inflation during the 1980s, and is similar to other periods over the past 40 years.

How are these changes affecting the market?

Well, so far, it may be slowing the rate of intense sales, but so far only slowing.

This charge below shows the periods of increased mortgage rates along with corresponding sales and inventory, and you'll see that the sales are only slowing to a rate that is still higher than the pre-COVID period. Additionally, inventory still remains at historic lows.

This similar chart shows how despite bumps in mortgage rates the median sales price continues to rise and the rate of sales price continues at historically high levels, showing the market has room to go before reaching what would be considered normal by historic standards.

Additionally, the increased mortgage rates may be low when compared to the increases in core inflation. While mortgages have risen from 2% to today's 5.39%, the core inflation rate has risen from about 2% to 6.75%, and even that rate is at a minimum conservative and suspiciously so.

And yet, the real estate news will exaggerate the facts.

Here, while it is true that some buyers are leaving the market due to increased prices, even this "report" shows the number of buyers giving up at 25%. This when the average home still has 5 offers on it, so maybe it will go down to 4 offers, and this does not account for new buyers entering the market. This story has been repeated throughout the last year, but is really an inaccurate portrayal of the market.

Additionally, there are reports that investors are reducing their rate of purchases in real estate. First, the change in investor percentage is almost insignificant, as the rate dropped to 20% from 21.5% last year. More importantly, is that bad? When investors buy homes, the news is that homes are not affordable for "ordinary" Americans, yet when the percentage of homes purchased by investors dropped it is somehow seen as a sign of the market turning.

So, what to conclude?

1. Mortgage rates are rising;
2. Home sales still continue at historic levels and appear on track to continue that way;
3. The rest of the economy seems to be heading towards historic inflation levels where everything rises in price.

If you are buying, you should look for escrow fallouts, be patient when buying, and make sure to get the loan rate locked in that makes sense for your transaction.

How can I help you? Call, text, or email me.
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