The Triple Whammy Devastating Would Be Home Buyers Right Now
I’ve been doing a bit of house hunting lately and it’s a tough market for buyers. There’s really three things driving the market right now and they’re all making it incredibly hard on prospective homebuyers:
- High interest rates.
- Low supply (and stubbornly high home prices).
- Very high peripheral costs such as home insurance.
Higher mortgage rates
The interest rate part is pretty obvious. Thanks to the recent inflation scare, the Fed (Federal Reserve) pushed interest rates up significantly. And because mortgage backed securities trade at a spread to Treasury bonds, as Treasury yields went up so did mortgage rates. The end result was that mortgage payments for prospective homebuyers effectively doubled (as the interest cost of debt massively increased) from the lows of just a few years ago. And given that most people’s incomes stayed roughly the same, we all saw a drastic decline in affordability (measured as monthly income over monthly mortgage payment).
The problem was that there was no home price decline to accompany the rise in rates. Econ 101 says that when the cost of something goes up, demand for it goes down, which causes its price to decline. After all, the point of raising interest rates was to…
