Rates Hit New Record High & Will Go Higher!
I remember when Phoebe, Rachel, Monica, Chandler, Joey, Ross, Raymond, Regis Philbin, and a bunch of really serious (and very handsome) surgeons from ER were all complaining about high interest rates – and how they probably caused the dotcom crash.
It was the year 2000, the last time mortgage rates hit this level, and Friends, Everyone Loves Raymond, ER, and Who Wants to Be A Millionaire were all top-rated TV shows.
Two interesting things: (1) It is fascinating to think about how few options we had when it came to TV programming, and how we were effectively “forced” to watch those few shows, or, god forbid, read a book instead; and (2) interest rates peaked in 2000 right before the dotcom stock market crash – which, when thinking about today’s high rates, makes me go “hmmm….”
Anyway – mortgage rates hit a new 23-year-high today in response to more inflation fears and nervousness about this week’s economic releases. I listened to several analysts over the weekend say that they think rates could climb another 0.25% or more before settling down, or before investors remember that the Fed is wrong … a lot. Equally interesting is how wrong I was late last year and early this year, when predicting lower rates by May and July (based on predictions of other analysts of course); I never thought we’d see rates this high, and I plan on blogging about my wrongness in the near future because it makes for interesting reading.
Here is my main point: Today’s “high rates” remind me very much of the “high rates” we saw in 2000, and in 2007 to early 2008. And rates plummeted shortly after both of those peaks in response to crashes.
Airbnb Crash – Perspective!
The internet is filled with predictions of a pending Airbnb crash, that will in turn bring down the entire housing market. If you search for “Airbnb bust” on YouTube alone, you will see dozens of recent videos pop up telling you that an Airbnb/housing meltdown is imminent.
But, enter Greg Dickerson, a renowned housing analyst and former developer who was on David Lin’s YouTube channel yesterday with this: Why Hasn’t Real Estate Crashed Yet?
He addressed a lot of topics, and I highly recommend the video, but his Airbnb stats were the most interesting.
America’s housing stock is worth a whopping $47 trillion. There are 82 million single-family homes in the U.S., and well over 100 million housing units if you add in condos, duplexes, etc.
There are approximately 1 – 1.5 million units listed on Airbnb in America, but many of those are not even homes; they are hotel rooms, ADUs/in-law units, extra bedrooms, trailers, converted garages, etc.
And, as we all know, inventory remains far too tight in the face of mortgage rate lockdowns.
So, even if a huge portion of the single-family homes on Airbnb ends up getting sold, the total impact on inventory will be a drop in the bucket, particularly when we consider how inventory-starved we remain.
Dickerson made numerous other points, some of which I disagreed with.
- High interest rates crashed housing in 2008 because everyone had adjustable-rate mortgages. I disagree. Higher rates exacerbated the problem, but when values dropped a little, the real problem was a lack of equity and little recourse from walking away from the loan. This caused a spiral effect of foreclosures, as many owners with negative equity simply walked away from their obligations whether they could make the payment or not.
- The rental market remains strong. Even if rents fall, they will still remain much higher than where they were prior to the pandemic.
- We need a massive surge in supply before we will see a crash – no surge is coming. This is largely because so many homeowners have such low rates and/or so much equity; there will be very few foreclosures or forced sales like we saw after 2008.
