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False Dawn? US Pending Home Sales Jump
Guess what? Contract signings in the US housing market picked up smartly last month.
That's news. Really it is. Maybe not headline news during a week of wild geopolitical escalations, central bank meetings and top-tier data releases, but news all the same.
The NAR's gauge of pending US home sales, you might recall, slipped to the lowest level on record in May. Any rebound would've been welcome, which means June's near 5% increase -- more than double the expected recovery -- was cause for celeb
Sorry to repeat myself, I did comment this elsewhere already today, but as a newbie, I would like to understand why a 5% interest rate is onerously high now, when it was historically low in the 90s and we had a dotcom boom.
The bigger problem is this:
https://www.visualcapitalist.com/median-house-prices-vs-income-us/
5% is not intrinsically high or low, it is simply a question of what a buyer can afford at a given rate.
If you have $2500/mo for mortgage payments, 5% rate on a 30 year mortgage lets you afford a $461K house, while at 3% you could have afforded a $588K house, and at 7% you can only afford a $372K house. (simplified: ignoring down payment, other costs, basically using loan principal as a proxy for how much house you can afford.)
So as rates have gone from 3% to 7% the hypothetical buyer has seen the house he can afford go from $588K to $372K, while the house he wants has gone from $500K to $600K.
When comparing to the 1990s, you have to factor in house prices then.
I’m at five percent and it’s onerous because I’ve only seen 2-3 percent and I wanted to upgrade, not downgrade.