We can endure $200 WTI and $10 at the pump. We can live with war and famine and crime. What we cannot live with, under any circumstances, is another housing collapse. The fate of that eventuality, or lack thereof, lies with interest rates
As you can see rates have recently soared and over the past year the 30yr mortgage, backed by MBS, have soared from low 3s to now 5s.
How can rates remain low while at the same time defeating rampant inflation? I know what you’re going to say — ‘demand destruction’ as per slowing economy. But that’s off the table with Russian sanctions. Supply disruptions all but insure elevated commodity prices for the foreseeable future — which will be directly applied to the faces of the poors. This will lead to increased budgets and profligate spending and even more inflation. Our leaders are fucking morons and prescribe the exact tonic to cause inflation while at the same time hoping to defeat it.
Like I said earlier, we can deal with the pangs of higher costs and as long as the dollar remains currency reserve and the Russian war doesn’t spread — we can spend like idiots and wait for things to stabilize. But none of that will occur if rates jimmy higher. An environ where mortgage rates are higher than 6% all but prices the middle class out of housing and will collapse MLS listings, as people find themselves imprisoned in their homes, unable to move anywhere affordable sans shitholes like Detroit. Under such a scenario, mark to market will happen and banks will take immense losses — especially since prices are so elevated now.
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1. People still bought houses when rates were 13% in the 80s.
2. There is still a supply problem in the housing industry that is 10 years in the making. Higher cost inputs will slow the correction in inventory.
3. Wage inflation will make up 50% or more of the rate change over time…look at job openings and wage growth over the last two years.
4. The trajectory will change – in the mid term (12-18 months) inflation/rate increases will cool demand which will be cause for…you guessed it…lower rates.
Will there be some pain, sure. Will the economy collapse like 2008, no.
You sound like a college professor. Am I right?
Yes, as Metalleg mentions. keep it stupid. People here barely know how to read. btw, talking about knowledge, where’s the IBC podcast?? come on Fly, there’s an opportunity!
Acquisitions department at a REIT.
Along with that asset prices will stay elevated so mark to market won’t be an issue. The majority of homeowners are locked in at historically low rates so their homes are actually an inflation hedge.
If they stay put perhaps. But they’re going to lose a lot of equity if and when prices collapse. Those who lose most or all of their equity or go underwater won’t be able to leave.
Mortgage forbearance has ended. Those who participated for the last 18 months have to start paying this month (03/22).
It will be interesting to see the foreclosure rate.
Take a page from auto leasing. Just stretch out the terms. Ask anyone in car sales, it’s all about the monthly payment. Maybe a nice juicy 50 year mortgage is in store.