Housing Market Insights By Nik Shah (Home.LLC)

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🏡 Mortgage Rates Are Soaring! Will They Crash The Housing Market?
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🏡 Mortgage Rates Are Soaring! Will They Crash The Housing Market?

After a lot of analysis, we strongly believe that home prices will keep on rising.

Nik Shah
Jan 25
15
Share this post
🏡 Mortgage Rates Are Soaring! Will They Crash The Housing Market?
homellc.substack.com

You’ve read the news: mortgage rates shot up by a whopping 51 basis points in just 4 weeks - from 3.05% to 3.56%!

30-year fixed mortgage rates.
Analysis by Home.LLC. Sources: Freddie Mac.

As we told Fortune, our models project a 4% rate by the end of 2022. Most experts agree.

You may think that the rise in rates will reduce demand and crash the housing market, right?

Wrong!


Surprising: Skyrocketing Mortgage Rates Have Always Coincided With Home Price Increases!

Change in home prices during periods of mortgage rate hikes.
Analysis by Home.LLC. Sources: Freddie Mac, FHFA.

In the last 45 years, every time mortgage rates have increased by 100 basis points or more, home prices have also increased.


Moreover: Home Prices Increase Faster When Mortgage Rates Rise!

Avg. annual change in home prices - mortgage rates rise vs. fall.
Analysis by Home.LLC. Sources: Freddie Mac, S&P Global.

Home prices increase at a faster annualized rate during months where mortgage rates rise.


Why does this happen?

Three reasons.

1. Higher Rates = Lower Inventory

In the last 30 years, most rate hikes have lowered existing home inventory.

Why? Because homeowners who bought their home at a low mortgage rate don’t like selling their homes in a higher rate environment, unless they absolutely need to.

Change in existing inventory vs. rise in mortgage rates.
Analysis by Home.LLC. Sources: Freddie Mac, NAR.

2. Higher Rates = Higher Inflation = Cheaper Mortgages

US inflation is at a 40-year high. True inflation numbers are even higher. On top of that, inflation reduces the cost of future mortgage payments!

Thus, high inflation ends up increasing your house buying power.

In fact, real mortgage rates (mortgage rates corrected for inflation) are negative right now!

Real 30-year fixed mortgage rates.
Analysis by Home.LLC. Sources: Freddie Mac, Bureau of Labor Statistics.

3. Mortgage Rates Rise When Economic Growth Is Strong

Mortgage rates usually rise during periods of strong economic growth.

Here’s why:

  1. A rising economy leads to an increase in wages and prices, i.e. inflation

  2. The Federal Reserve implements policies to counter inflation

  3. These policies cause mortgage rates to rise

People generally earn more in a rising economy. Thus, demand for homes stays high even when mortgage rates rise.

Sure enough, the US economy saw strong growth in 2021, and is forecasted to grow faster than average in 2022.

Real GDP growth.
Analysis by Home.LLC. Sources: Freddie Mac, Bureau of Economic Analysis.

To sum up, expect home prices to keep on rising in 2022.

If you are interested in investing in real assets, set up a call with me.

Chat with Nik

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🏡 Mortgage Rates Are Soaring! Will They Crash The Housing Market?
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