The U.S. Inflation Rate is still twice as high as it was in 2020. The Shelter Inflation Rate has been steadily fluctuating between 8% and 10% for the last year (more than double the typical Shelter Inflation Rate prior to 2021). Housing inventory is at historical lows, which is approximately one million homes currently, as compared to four million homes available in 2008.
Politicians are on the brink of a catastrophic U.S. economic meltdown as the deadline to increase the national debt ceiling continues to linger closer by the day.
Immediate forecast for rates: Not Better. If you haven’t turned on the news lately, then bless you! I wouldn’t recommend turning it on. In summary, the media is all about highlighting the national debt ceiling deadline right now. And as long as our nation’s leaders prioritize the back and forth arguing about how terrible each party is, we can expect the market to respond in concern about the debt ceiling not being raised in time, although, the United States has never defaulted on its debt. However, we can expect the 10 year treasury to hold steady around the 3.5-3.8 range until our politicians put on their big boy (and girl) pants and find some common ground to justify raising the debt ceiling. This will likely happen at the final hour prior to the deadline of June 1st. Once that happens, we hope for the market to calm down a bit.
What does this mean for a housing market crash?
If you’re waiting for home prices plummet because of high interest rates, inflation, or unemployment, then you may be waiting for a lifetime.
There is not going to be a housing market crash anytime soon. It’s not going to happen. Given that the housing inventory levels are at historic lows and people are still moving and buying, housing demand is high enough to accommodate higher mortgage rates and increased real estate prices. As long as this remains, homes will continue to sell at historic prices.
(10-Year Trended U.S. Housing Inventory Level According to National Association of Realtors)
It’s not so bad, however! What’s the quickest way to address low housing inventory problems? How about building more homes? New construction inventory is up 115% according to USA Today. Millions of homeowners are enjoying 2% and 3% mortgage rates on their current home loans. This makes it hard to justify selling to buy a bigger home that is incrementally more expensive, not to mention financing with an interest rate that’s 2x-3x higher. As a result, we have low existing inventory, so those are are buying, are shifting to new home construction.
More good news! The Shelter Inflation Rate is beginning to show signs of cooling off. According to americanactionforum.org, Shelter Inflation plummeted nearly 40%.
This is a big deal because Shelter Inflation makes up nearly one-third of the overall Inflation Rate. As overall inflation cools off, so will mortgage rates. You will probably notice this begin to happen in the next few weeks. All assuming that another economic surprise doesn't pop up.
National Debt Ceiling
This isn’t just a number. If the debt ceiling is not increased by the June 1, 2023 deadline, then a number of consequences will be in the face of millions of Americans. And none of them are good.
If the U.S. does not increase the debt ceiling, then America will default on its debt for the first time in history. Financial catastrophe will become reality. Wall Street and global markets could plunge, resulting in 401k plans, college savings, and countless other market investments plummeting. Social Security, Veteran benefits, Medicaid, and Medicare could dissolve, and the U.S. dollar could become worthless. And that’s just the beginning.
Fortunately, top congressional Republican Kevin McCarthy and Biden have “reached a tentative deal to suspend the federal government’s $31.1 trillion debt ceiling” on Saturday evening, May 27th according to Reuters.
If our politicians leverage their hearts rather than their pride, we can expect a resolution to be in place and just in time.
While it’s not all sunshine and rainbows, it is a step in the right direction. While raising the debt ceiling enables more debt to accumulate, I anticipate that part of this deal to raise the debt ceiling will include a plan to minimize unnecessary spending.
America accumulated this debt. America needs to pay for it. Otherwise, history will continue to repeat itself.
As for the housing market crash that many are waiting for, it’s not going to happen; not anytime soon at least. In fact, demand for housing will only grow if mortgage rates drop again. It’s very possible that rates will begin dropping again next week after it is announced that the debt ceiling is raised. Then, rates should continue dropping as inflation cools off.
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Terry Roberts is a U.S. Marine Corps Veteran and specializes in residential mortgages, including new construction, conventional, FHA, and VA home loans. He has helped more than 10,000 clients start the home buying process across America.
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