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Last month, I asked if rising mortgage rates were holding ppl back from purchasing? The responses were 50/50. Some buyers were suddenly priced out of their target markets, while others rushed to close the deal as rates spiked.
Today, we got two more big data points. D.R Horton and Pulte, two of the largest home builders reported earnings. Both saw their net new order fall significantly from expectation, and not surprisingly stocks got slammed. Looking at the trajectory of mortgage rate, it did fall back somewhat after the initial run up, but in the last several days was on the upswing again. 10y and 30y treasury yields(which rates tether to) are only 10 bps away from yearly high. Perhaps in the not too distant future, we'd see that 5% on a 30 year mortgage.
I'm not saying to hold off your purchase necessarily, but buyers definitely have more bargaining power, particularly against builders(as opposed to existing homes), who are often highly leveraged and vulnerable to a potential mkt. downturn.
It really all depending on location and the inventory of that location. But ya, the affordability will definitely go down if Rates go up. so Prices will have to make up for it.
I personally believe 5% is the inflection point in terms of mortgage rates. Anything above and will see a significant enough impact on prices. Unfortunately that point isn't far away. However wait for fall when the markets begin to tank and everyone starts talking about doom and gloom scenarios again... an annual cycle. Market runs up for first half, tanks in 3rd Q and picks up steam again towards the end.
In the long term there will of course be a see-saw relationship between prices and rates, but on the flip side with rates starting to rise (although we'll see if that trend continues, with the Fed so active in the last few years it's hard to say unless you have inside knowledge there) a lot of people on the fence about buying or planning to do so at some indefinite point in the future might get a lot more serious about it and start to make moves to get that done; so what could depress demand in the long term could cause a spike in the short term.
Granted all these could's and maybe's are just that, hard data is king and if it says otherwise, that's that.
Interesting tidbit. I got a call from a Toll Brothers community I visited several weeks ago. The sales lady was telling me that they're running a two week promotion, where buyers get a $40,000 credit towards purchasing and a $5,000 credit towards upgrades. But of course, the deal is a "one time" thing and I need to act now!!! Hmm....
Housing has slowed to a crawl since the spring bump. As rates, insurance and taxes goes up, it will ultimately lower prices due to buyer's strike.
Higher rates hurt tech businesses and their borrowing cost as well. This may hinder local job growth. People might be worried about job cuts coming, so staying put instead.
With record deficit and no action from DC, we're just kicking the can down the road.
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