Mortgage Rates AGAIN Set New Record, Still No Housing Crash In Sight

The real estate news industry still seems almost comical in its inaccurate and exaggerated reporting.

Okay, here is a fact. Rates closed over 5% this week. Indisputable, and a new milestone.

Yet, as recently Monday, "experts" were mixed on when or if it would happen. MarketWatch polled "4 economist and real estate pros" and some thought rates would cross 5% in a few months, others thought never.

And, they were all wrong. The chief economist of Freddie Mac says rates are "likely to hit 5% by mid-year..." Ooops.

So, what's the affect. According to  Zillow's senior economic, a 5% mortgage rate would bring "sticker shock" to buyers." He paints a picture of buyers watching both rates and prices increasing regularly and becoming increasingly discouraged, and soon to give up.

But, that's not how it works. Each month new buyers enter the market.

So, what are the facts?

Well, again CNBC breathless reports "Surging interest rates push mortgage demand down more than 40% from a year ago..." which would send waves of fear to sellers needing to sell their home. But if you look at the smaller print, you'll notice that applications to PURCHASE a home dropped only 3% for the week and 9% lower than a year ago.

OK, you may ask, isn't a 3% decline or a bigger 9% decline significant? It sounds bad.

Well, also, almost insignificant.

A recent survey by the National Association of Realtors reports that the average home that sold received 5 offers. So, if there are 9% less sellers that would make the average home receive 4.5 offers, hardly noticeable.

After all that, even with rates crossing an emotionally significant threshold like 5%, it seems as though the market is continuing on a fairly healthy pace. I mean, if there market was crashing, or even cooling, you would see more homes on the market, right?

Well, not today. 

Inventory continues to decline below previous records.

New listings, while slightly higher than 2020, are otherwise significantly the lowest in recorded history...

...and new contracts are tied with last year for the highest ever.

So, other than false fear-mongering, what does the real estate industry do? It misinforms the public, by exaggerating factors to create some content. In prior weeks I reviewed how the press oversells the value of staging as a way to create advertising revenue from that industry. This week Angie's List (now called Angi) has a seemingly detailed report on the features that "boost" a property's value. It lists a number of features in a home that one might add and then checks sales statistics to see homes with that feature to determine the extra value that item brought. The first paragraph header screams "A Pot Filler Can Boost a Home's Value by 3.2%."

OK, I will admit that my main cooking expertise is a grilled cheese sandwich, but even I know that a pot filler that might sell for a few hundred dollars and a few hundred more maybe installed cannot add 3.2% of the value to an average $800,000 home, or that would be over $24,000 for a $600 handyman job. Who would think that is even possible?

Then, to try to be even more scientific, the report shows the top feature by city, indicating that the top item, for example, in Los Angeles was, indeed, a pot filler, but it added over 12% of the value of the home. What? On an $800,000 home, I can get an extra $96,000 by installing a pot filler? If that were true, pot fillers would become the next tissue paper and be hoarded.

Obviously, this is ridiculous. What they did was survey homes that had pot fillers, compared them to those that did not, and calculated the difference in sales price, It should be obvious, however, that of two homes, if one has a pot filler, that same house probably has other upgrades and features that would ALSO account for the increased value.
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