Everyone Thinks Higher Rates Will Kill The Housing Market
We shared this blog, Higher Interest Rates Did Not Slow Housing Appreciation; Why?, with our database in our monthly newsletter a few weeks ago, and I got this response from a past borrower: “You really think that if the Fed raises rates seven or eight more times that housing prices will stay firm? C’mon…”
It appears that everyone thinks that higher rates will tank the housing market, but we need to distinguish DEPRECIATION from slower APPRECIATION.
Barry Habib Remains Unconcerned
Barry Habib, of MBS Highway, weighed in on this very topic recently. I would share his full video, but it is unfortunately behind a paywall.
I cite Barry Habib often in my blogs because he has been so accurate with his predictions in recent years, even winning awards for his accuracy.
Habib focuses on CNBC’s Diana Olick, as she seems to be the chief fear spreader when it comes to housing concerns (and Habib disdains her for that).
Sidebar: Love & Hate for Olick: Habib is one of several commentators I follow who hold Ms. Olick in very low esteem for her fear-mongering, while several other commentators (such as George Gammon) hold Olick in very high esteem for her realism and willingness to buck the mainstream narrative. I really enjoy this because it makes my news feeds far more interesting and because it ensures I am not in an “echo chamber” with everyone repeating the same points (something that is extremely important when garnering info for investment and/or business decisions).
Habib notes that “Housing Bubble” is currently one of the most popular search terms on Google, and he focuses on this CNBC article by Olick: Rising Mortgage Rates Cause More Home Sellers To Lower Asking Prices.
Habib addresses the below two bullets from the article:
- About 12% of homes for sale had a price drop during the four weeks ending April 3. That’s up from 9% a year ago, according to Redfin.
- The number of new listings last week jumped 8% from a year ago, according to Realtor.com. This follows four straight weeks of annual declines in new listings.
With respect to 12% of homes having a price-drop, he pointed out that we saw that 9% of homes had a price-drop last year at this time – in one of the hottest markets in history. So, a mere 3% change is hardly cause for concern.
With respect to listings “jumping” 8%, Habib pointed out she is misconstruing data and seasonality impacts. This is because listings jumped 10% last year during this same time period – something we see every year in early April (he showed a chart showing the same pattern year after year).
Slower Appreciation vs Depreciation
Habib agrees that higher rates will slow down the housing market, as many buyers will be pushed out of affordability range by higher rates.
BUT – he says that will not result in actual depreciation. It will instead just slow the rate of appreciation for the 18%+ number we saw last year to a more reasonable single-digit rate of appreciation between 5% to 8%.
Huge Leverage Lesson Too
Habib also reminds us of the power of leverage in an even mildly appreciating market.
If a buyer puts down 10% ($50,000) for a $500,000 home and that home appreciates 5% ($25,000), that buyer will have made 50% against the money she invested!
This illuminates the power of leverage, as buyers benefit from the appreciation of the entire asset even when they finance 90% of the price of the asset.
Why Habib Is So Confident
Habib didn’t discuss this today, but I will repeat his past points (again): Builders have been building far fewer units than they did prior to the 2008 meltdown, and the number of homebuyers hitting homebuying age (early 30s) is way up compared to 2008. So, far less supply and far more demand = appreciation even when rates are shooting up.
Could Habib Be Wrong?
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