High Rates; Softer Market; ARMs; Housing Shortages; Recessions; Refis

Highest Mortgage Rates Since 2009

Last week’s sky-high inflation numbers have pushed 10-Year Treasury rates to levels we have not seen since 2018.

While mortgage rates are at levels we have not seen since 2009.

Beating A Dead Horse – Again

The fast-climbing rates and media rumblings continue to spook buyers – so I am going to beat the “ARM/RECESSION/HOUSING SHORTAGE/REFI” dead horse again – to hopefully alleviate concerns (again).

1. Higher Rates Are Opening Up Inventory. While overall inventory levels remain near record lows nationwide, we are seeing inventory levels creep up in some markets as a result of higher rates, and that is in turn creating opportunities for buyers who are still in the market.
2. ARMs For Lower Rate. In this blog from May, I encouraged borrowers to take Adjustable Rate Mortgages (ARMs) instead of 30-year fixed-rate mortgages because ARM rates are as much as 1% lower and because ARMs are so much safer nowadays.
3. Recession Coming. In that same blog about ARMs, I reminded readers how likely it is that the U.S. will experience a recession in the next twelve months, and how recessions invariably bring down rates.
4. No Cost Refis/Nobody Will Keep Current Loans. Because a recession and lower rates are so likely, it is very unlikely that borrowers getting mortgages today will still have those mortgages 18 months from now (because they will be able to refinance into a lower rate and probably at “no cost” when rates fall). This should significantly mitigate concerns about today’s rates.
5. Underbuilding Since 2008. I am going to blog more about this on Wednesday, but this FRED Chart, showing the number of housing units completed since 1968 on an annual basis explains why there is a housing shortage in no uncertain terms: we have been building at about half the pace that we were building at in the decades up to the 2008 meltdown. This took place too while our overall population and peak homebuying demographics have continued to grow.

Is there a chance we won’t have a recession? Yes, as consumers are sitting on $2 trillion in savings; the job market is still very tight; and the economy appears to be bustling still in general in many areas, e.g. travel.

But, the recession indicators seem to be much stronger as pointed out by the likes of Barry Habib and Jeff Snider, both of whom I cite often because of their accuracy when it comes to predictions (I highly recommend following Jeff Snider on Twitter to see his insights). In addition, 77% of CFOs surveyed predict a recession in early 2023. And finally, The University of Michigan Consumer Sentiment Survey hit an all-time record low recently.

So yes, I think a recession is very likely; that a drop in rates is very likely; and that housing will hold its own, even if it stops appreciating at insane rates (which is probably a good thing).

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167