Mortgage Rates Surge Most Since 1987 As Housing Bubble Pops

Mortgage Rates Surge Most Since 1987 As Housing Bubble Pops

Housing starts aren't supposed to be falling yet. Theoretically, higher rates should only impact starts on a lag in a market where the vacancy rate is low. The logic is straightforward. As Goldman put it earlier this year, "when housing markets are tight, homebuilders are likely to keep building because they have little fear that homes will sit vacant after completion." Given that, it was notable that housing starts very nearly matched the most pessimistic estimate for May in data out Thursda
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7 thoughts on “Mortgage Rates Surge Most Since 1987 As Housing Bubble Pops

  1. Markets are adjusting faster than many are accustomed to – housing is no different. Demand is falling faster than supply can be adjusted. Inventories may be low now, but in 3-6 months they will most likely be signficantly higher. In housing the first step for falling prices is increasing inventory. It is just starting. I expect housing to correct significantly- demographics held up prices better than the financial markets but the downward pull is definitely there. Given what is now going on, it is looking like this Fed hiking cycle is going to be one of the fastest and shortest in history. I don’t expect it to last too much longer. They will be cutting rates in about 6-9 months…..

    1. Great point RIA. Things move so much faster and more violently now, don’t they.

      It’s time to update the models and “rules” that street and Fed economists rely on to make sense of the unknowable.

      Such as the revered Taylor rule which has been cited by two Fed governors recently. As noted by the folks at Investopedia:

      “For many, the jury is out on the Taylor rule as it comes with several drawbacks, the most serious being it cannot account for sudden shocks or turns in the economy, such as a stock or housing market crash. In his research and original formulation of the rule, Taylor acknowledged this and pointed out that rigid adherence to a policy rule would not always be appropriate in the face of such shocks.”

      Things change!

  2. I think the housing bubble has been leaking for some time. Locally, ( and housing markets are like politics – all local ) I have observed banks putting foreclosed properties on the market and then taking them off the market if inflated valuations were not realized. I assumed that the bank’s negative real interest rates were the reason for this. If that is true, it will be very interesting to watch as interest rates rise and the economy collapses. I wouldn’t want to be the last one huffing and puffing to keep the leaking bubble inflated.

  3. There’s no way America doesn’t see a nationwide decline in home prices during the hangover. I’ve heard from mortgage banker after mortgage banker that a nationwide drop isn’t likely, and they all seem oblivious to the circumstances facing their own industry. (I’ve mentioned this before, but I’m considering finally moving away from the island retreat I’ve called home for the past six years. I’m now supremely confident in the odds of finding one, and maybe even two, bargains within 18 months.)

    1. Therein lies the problem. Those with the means to buy a new home or two with cash or a sizable down payment will do so, especially if prices come down just a little bit. Demand isn’t the issue, it’s the lack of supply that could keep home prices relatively stable IMO. I think there is enough pent-up demand that buyers will step in to BTFD regardless of where home mortgage rates are, because the gamble will be that they can refi at a lower rate sometime in the near future if the Fed finds itself battling a collapse of the broader economy.

  4. This year has been a rude awakening, as many realized that the stock market is not a perpetual motion machine that can only go up, but as you so aptly put it in a recent piece but a “Doomsday Momentum Machine” that is now blowing up.

    The housing market in the US (and here in Canada) has been no different. Housing markets in cities like Vancouver and Toronto defied gravity in recent years!

    Clearly interest rates take a few months for their impact to be fully realized. So I guess it is the market psychology and home buyers psychology are both changing fast! The bubble is deflating and/or may soon burst!

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