High Rates, High Regret - Home prices in the United States declined for the sixth straight month in July.
As the economy starts to slow, homebuyers have started to taper the pace at which they're willing to throw money at a new (to them) dwelling.
While some slowdown is great for the buyer in what has been a seller's market for the last couple of years, the negatives seem to outweigh the positives.
As buyers have finally had some sense talked into them by Daddy JPow, inventories have somewhat recovered to decently sustainable levels. Time on the market for homes looking to be sold is up considerably.
The best part is that the median price for a home sold in the US has dropped from above 413k down to 403k. At this rate, the median home price may be below 400k by the end of this month. That's great news for millennials, GenZ-ers, and cash buyers who have been looking for somewhat of a housing market reset of late.
But here's the bad news: as interest rates have gone up, some buyers have been "priced out" of the market, no longer able to afford the monthly payment for the type of home they had been eyeing for months or even years now.
A 6% 30-year fixed is a hell of a kick in the wallet compared to a 2.6% loan back in early 2021. If you know anything about how loans work and amortization schedules, take a look at the percentage of the principal that gets paid off each month early in a loan with an interest rate that has doubled. It ain't pretty. It doesn't take a rocket scientist with a Ph.D. from MIT to understand these newly induced limitations in the housing market.
This has also affected housing starts and the rate at which homeowners have been looking to refinance. If you were thinking about refinancing and never got around to it, you're probably feeling the burn right now and potentially regretting that you missed out when the music was playing.
But a 6% mortgage is still historically low. There are no guarantees that rates ever make their way back down to like 0% in the near future, and we likely have at least a 50, a 50, and a 25 bps rate hike in front of us as the Fed keeps up its taper tantrum.
What does that mean? Well, mortgage rates are going to keep rising in the short term, and that's good for inventories but bad for your monthly payment.
We will see what happens when inflation is back under control in the eyes of the Fed.