“What we’re seeing instead is that the surge in mortgage rates engineered by the Fed is adding to affordability problems. So it stands to reason that the places most affected will be metro areas that were already the least affordable…” Writes Conor Sen over at Bloomberg.
- This is not 2008. Sen writes that there is no broad industry downturn like we have seen before with oil and gas or the tech that could have an impact on major metro areas. In fact, “Homeowners haven’t taken on too much debt, and there’s no inventory glut — quite the opposite, in fact — that would lead to a broad-based downturn.
- One of the factors that could be a wild card in this situation, Sen notes, is the post-pandemic migration dynamic of high-income households moving from high-cost to lower-cost areas. Essentially, people moving from a high-cost place like California still see prices in the Midwest as affordable despite the last few years of price hikes which could help keep those prices elevated despite rising rates.
- Sen does conclude with some good news for the coming changes in the market. “If there is any upside for buyers in the current market, it’s that because the affordability problems created by rising mortgage rates are intentional on the Fed’s part, they can always reverse those increases if it turns out they’ve overdone it to the point it threatens the economy.”
As we all know, this slowdown is not a 2008 crash in the making. But it is a slowdown that, unfortunately, is also not helping with the one area that most policymakers are concerned with, affordability. Obviously, the end result, at some point, will be a pullback in prices but it’s hard to know when that could be. However, as rates rise it will push more wannabe homeowners off the fence, it will encourage current homeowners to stay put, and, probably most importantly, it will disincentive homebuilders. Policymakers are going to have to be able to withstand some troubling headlines for a few months or more if they want the eventual payoff.