While higher rates increase mortgage payments and decrease qualifying amounts, they do not depress house prices according to the podcast.
TWO REASONS WHY HIGHER RATES DON’T DEPRESS PRICES
1. More Demand: Higher rates usually correspond to a stronger economy with higher wages and more job growth, and this translates to more demand for housing.
2. Lower Inventory: Mr. and Mrs. 3.5% ain’t moving. People with low 30 year fixed rate mortgages who might have moved when rates were low are now staying put b/c they do not want to give up their low rate. This of course decreases supply, which pushes up prices. Recent tax law changes only exacerbated this problem.
The podcast cites the Fannie Mae Home Purchase Sentiment Index which recently hit an all-time high. The index is the result of a broad survey, based on income, job security, and sentiments about housing in general, among other things.
In any case, the Index indicates that Americans are now more confident about the housing market than they have been in seven years (when the Index was first created).
What could bring housing prices down?
A lot of things including tech regulation, trade wars, and – most significantly – quantitative tightening! To be continued… (on Wednesday)
