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Mortgage Rates About to Put the Hammer to Housing

We are very close to the point where most house sales will come to a halt. Yes there will always be some activity because sometimes folks have to move–for jobs etc. But from my close up view in Minnesota, what was already a fairly slow market is slowing further and properties for sales are remaining on the market longer. Prices are high–and coupled with mortgage interest rates that have moved up 20 basis points just this week means the moment of truth is just about upon us.

Today I am working on 2 properties that are sales—both family related (sold by parents to children or grandchildren), so they are special circumstances. Also I have a plate full of orders that are all home equity loans–yes there are a few lenders that require an appraisal for a home equity loan versus just going off the tax assessed value or some similar value. I have no idea what interest rate they are paying–but it would seem those will grind to a halt soon as well.

So my point is that the marketplace may well take care of slowing the economy without a need for incremental Fed Funds rate hikes. If builders in our area aren’t slowing construction they are pretty foolish–it looks like a good year to ‘take the winter off’—we’ll see.

27 thoughts on “Mortgage Rates About to Put the Hammer to Housing”

  1. Focus here seems to be on “cost/rates etc”. No dispute. However, might wanna watch the other side, i.e., income. Airline pilots just received 20% hike. At bottom, where I live, no such thing as a rate = to min wage.

    Teachers with 8 yrs get over 100K. X2 if married to another teacher. . Auto workers will get a big hike. My first mtg was 14%. (Good ole volker) Then re-fied. Many owners have paper which permits mortgage assumptions.

  2. Just closed sale this week NJ rental property that was not even on market. Multifamily (front house, detached garage apartment) that needed at least 50k in kitchen bath carpet paint window upgrades. Young couple buyer put 5% down and financed 395k at 7.25 % FHA loan. (I thought these terms went away in ’08/09) I did not walk, but ran with the closing check to the bank…

  3. Well, we paid off the house before we retired, so mortgage rates are somewhat irrelevant except for the impact on equities we own. As far as the ProV1s the course I know where to look for the slicers and hookers drives and stay supplied with virtually brand new ones after a good weekend for play. Monday mornings are great days to play as the course is empty and the woods are full of those expensive Titlists, Callaways, etc!!

    1. Pig, you will have to pry my 2.75% mortgage note from my cold dead hands!
      Talk about “inflation” in the wallet. I just came home today from golfing and noticed on CNBC that a $400k house with 20% down payment is now $900 more expensive each month than it was 2 years ago.

      1. Grid:

        “and noticed on CNBC that a $400k house with 20% down payment is now $900 more expensive each month than it was 2 years ago.”

        That is true, but CNBC also mentioned that 90% of mortgage holders in the USA have mortgage rates below 5%. The overwhelming majority of homeowners are not being hit by higher mortgage costs at all.

        But the first time homebuyers, move-ups, etc. who can’t afford to pay “all cash” are definitely feeling some pain.

        I have a close friend who has been a very successful real estate agent for 30+ years in the southwest and he says this is the most difficult market he has ever faced. Lack of inventory, lack of buyers, lack of sellers, and mortgage rates at 20+ year highs. A toxic brew for sure.

        Speaking of golfing, my Titleist Pro V1s are now nearly $60/box (12 balls) – even on the discount golf websites. I need to do a better job of keeping these things in the fairway and away from the Out of Bounds stakes!

        1. Wow – $60 for a dozen of Titleist Pro V1s. I better go clean up my hillside, haven’t done so for a while (I am on the 18th fairway of a course). I usually pick up a bucket full of balls each year from my backyard and back hillside

          1. Maverick, here is how cheap we are. I play 3-4 times a week and havent bought a golf ball in over 10 years. And we usually hawk enough balls where we dont pay for range balls either. We just smack our own and leave them. Played one of my favorite courses yesterday and they only charge $19.99 for 18 holes.

              1. Mav, Im getting soft playing senior tees. Monday, I played in a 4 man scramble and it wasnt from the senior tees. I hit the long tee shot of 270 yards on one par 4 hole. And we were still 220 yards to the green. That kind of golf is no fun!

  4. Home equity loans may continue even with higher rates.
    With credit cards maxed out, home equity is that final source that a lot of folks draw on.

    1. Sad, but true. Lots of folks can’t grasp the concept of “spend less than you earn”. They get used to a “lifestyle” and can’t imagine living more frugally.

      I recognize there are really unusual situations, but I think a lot of people just can’t figure out how to live within their means.

      one couple we met (friends of one of my kids – part of the crowd who came to our house for the labor day party): They have no kids. she quit her job during covid, he changed to a job that pays less but lets him work from home 100% (I would guess he still makes over $200K). They are in this spending cyclone – just rolled over a car lease (they replace both car leases on 3 year cycle). went on a nice vacation to Europe, and eat out (or delivery) almost every night. Rent a very nice place. Wife was complaining that their cards are maxed out, their savings are gone, and now that they have to start paying their student loans again – and she just doesn’t know what to do.

      My wife was very proud of me because I just didn’t say anything, but these are both educated, intelligent people (well, OK, programmers), so I didn’t know what I could say. A swift kick did come to mind…

      1. “intelligent people (well, OK, programmers)”

        Hey – Be nice!! Some of us coders do have some sense and are doing quite well, thank you. 🙂

        1. Sorry – All of my sons are programmers, and I have been in and out of software companies for decades – but programmers are easy pickins.

          I learned programming “face down, 9 to the throat” but I haven’t done much coding for a lot of years (why code when I have kids and staff who can do it for me?).

          1. You get what you repeat. Ironic isn’t it, programmers that don’t recognize their in a loop.

            Financial doom-loops. Nooses come in many disguises.

      2. Private, We had potential clients approach us third party for a business loan. Mid-size company, family-owned, founding father passed a few years earlier. We obtained 4 years of financials. Spidey-sense triggered – I reviewed all myself. Son’s personal was running +/- $1M/yr for about a decade. $5M home, Bentleys etc, all the other goodies. Despite income, max leverage on all. Financials evidenced when dad passed, full throttle lifestyles remained in place, business governance went out the window. We declined the business. 2 -3 years later, learned son lost home, cars, toys, business closed, employees stranded, debts unpaid – absolute flat broke, had to be dragged out of the house. Particularly sad that in interim son convinced mom to cash out her paid-off residence to “invest in the business.”

        Probably was thinking a bit more than a swift kick. Woodshed comes to mind.

      3. Yep. Definitely a lot of that, and unfortunately always has been. I always liked this old Charles Dickens quote:

        “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result: happiness.

        Annual income twenty pounds, annual expenditure twenty pounds ought and six, result: misery.”

        1. This is an interesting quote. The UK currency system in those days was defined in terms of the Pound, the Shilling and the Pence. These were each defined in terms of silver. The Pound being 1 Pound (12 Troy Oz) of Silver. So you can convert this currency to US $ equivalent assuming Silver trades at $24/Oz for round numbers.

          That annual income is 20 lbs of Silver is 240 Oz – that is $5,760.

          Now lets look at the savings side.

          1 shilling was 1/20 of a pound and there were 12 pence to the shilling.
          So saving 6 pence per year amounted to saving 1/40 of a pound of Silver.

          So that amounts to saving 12oz/pound*1/40*$24/oz = $7.20 a year.

          I hope Mr Dickens was able to save more than that!

      4. Private–you showed huge restraint in not saying anything–I know I would have promptly said something and my wife would have been pissed at me.

      5. Usually my response is something along the lines of “when you have no debt then you are left with cash”.

        Think Dave Ramsay says something along these lines.

  5. The local credit union is getting 9.5% for a HELOC ( Prime +1%) and 8.75% for 20 year fixed equity loan. This rate is for borrowers with a 730+ credit score.

    1. The story hasn’t changed. The housing market is always a good indicator of the economy and the beginning of a recession. Of course, borrowing and loan costs, credit card debt too. Just the chicken or the egg theory. Being in a business related to building is why I use it as an indicator.

      1. Good morning Charles,

        Is your business slowing at all? I live in the Northeast and home prices have skyrocketed. We are just seeing a slow down in the upper range in Western Mass, North Ct over $600k but ita brely slowing down. We are having a tough time paying these 50% increases in housing prices from 2020

        Thoughts on the residental market?

        1. sjc, Wish I could say. When I was in distribution we could see a change with the trades as talked to them and how sales and bills got paid. Now being in sales for manufacturing its harder to get a clear cut picture. I would say cracks are showing as I am doing more call outs following up on late pay with a few distributors. One was a national account out of Florida. Not quite but next week will be 30 day. They didn’t respond to an e-mail a couple days ago. Their purchasing placed another order yesterday. I e-mailed back to say I was holding the order until I heard from AP and I also sent another e-mail to AP saying the same thing. They pay by wire, which is one to two day.
          Been doing this a lot more, I am sales but not saying I will not do collecting if asked to as part of the job.
          My experience is if they are not getting paid by their customers they are conserving cash.

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