What are the chances of the housing market realizing a 35% correction in residential home prices?
What are the chances of the average U.S. household income amount increasing by 55%?
What are the chances of mortgage rates dropping by 4%?
According to ICE Mortgage Technology representative, Andy Walden, at least one of these dramatic changes must occur before America will realize affordable housing again.
Without a significant crash of some sort, a 35% correction in home prices is not likely. Think about it this way, the subprime mortgage crisis resulted in a 30% correction.
Imagine what the rate of inflation would look like if the average U.S. household income increased by 55% overnight. For context, U.S. household income increased by only 41% over a 30-year period between 1970-2000. And that’s not a bad thing.
If one of these three events were to happen sooner than later, it would probably be the mortgage rate lowering. With consideration given to the recent news of the Hamas bombing of Israel, industry professionals tend to expect Bonds and Treasuries to respond in a way that may lead to mortgage rates softening. With the recent 2-day bond rally, rates have shown a bit of relief. Even with consideration to continued strong economic reports, i.e. Core Producer Prices, MBA Purchase and MBA Refi Indices.
However, if rates drop and demand for housing continues to rise, it’s likely that home prices will rise as well. Unless….
A large percentage of mortgage holders tend to either refinance their mortgage or sell their home within 3-5 years of establishing their mortgage. Many U.S. homeowners are ready to buy. Some are ready to sell and buy again. With mortgage rates being where they are today, the demand seems to continue to build because consumers are used to the historic low rates. When mortgage rates drop, homeowners may be more willing to sell which will help the current housing inventory challenges.
If housing inventory levels goes up as mortgage rates continue to soften, then we may realize a lower rate of real estate appreciation. I imagine that this would be a sacrifice that many would be willing to accept.
Long story short, mortgage rates appear to be holding fairly flat for the foreseeable future. Housing inventory levels remaining relatively low while U.S. economic reports continue to hold fairly strong.
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Terry Roberts, USMC Veteran Sr. Mortgage Broker NMLS 397987 E Mortgage Capital, NMLS 1416824
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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