The following is an excerpt from this week's subscriber-only DecisionPoint ALERT Weekly Wrap.
We have been commenting on mortgage rates for several months, and this week we finally saw a report on Fox Business that reported on the problem of rising mortgage rates. Also, for a couple of weeks, we have been hearing a local radio commercial that says, after months of frantic real estate sales, we now have some homes that are not selling. This could put pressure on buyers to lower prices.
Won't this bring prices back into the range for average buyers? Maybe, but people whose buying enthusiasm bids home prices up will become less enthusiastic about buying when prices are coming down. Falling real estate prices are not what they have been conditioned to expect from the HGTV House Hunter shows.
We keep hearing about a shortage of inventory. Where are people going to live? Well, they are living somewhere now. Maybe they want to move up, but if they can't, they won't.
MORTGAGE INTEREST RATES (30-Yr)**
**We watch the 30-Year Fixed Mortgage Interest Rate, because, for the most part, people buy homes based upon the maximum monthly payment they can afford. As rates rise, a fixed monthly payment will carry a smaller mortgage amount. As buying power shrinks, home prices will come under pressure.
This week, the 30-year fixed mortgage rate rose from 4.42% to 4.67%, which is over two percentage points above the low of 2.65% just 15 months ago. Assuming a fixed monthly payment of $2,015, the mortgage that a buyer can afford is 20% lower than it was in January 2021. All the while, home prices have been soaring (up +19% per https://realestatedecoded.com/case-shiller/), putting a double squeeze on buyers. But there are signs that this is about to change.
Conclusion: Cheap money has created another real estate bubble (thank you Federal Reserve), and conditions are ripe for that bubble to be popped.
Good Luck & Good Trading!
Carl & Erin Swenlin
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