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US Home Prices Climb Further With 86% Of Mortgages Still Handcuffed
US home prices are still rising. "Breaking news," I know. If you don't own one yet -- a home, I mean -- I don't know what to tell you other than "I'm sorry."
Data out Tuesday showed the nation's marquee price gauge rose a 12th month measured against the same period a year ago.
The S&P Case-Shiller 20-city index posted a 6.5% advance for June, according to the release, slightly slower than the prior month's YoY gain, but brisker than the 6.1% increase economists collectively expected.
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Any adjustment will take time.
Hasn’t the 10 year and subsequently the mortgage rate already factored in the first many Fed cuts? As you point out, to get materially cheaper through cuts would require a recession.
What I wonder is what happens when the league of America’s realtors — who now have Jerome Powell’s name on their lips like he’s Taylor Swift (and who presumably had never heard of FedFunds prior to 2020) — what do they do when he cuts 25 or 50 bps in Sept and the mortgage rate doesn’t move? (And heck, maybe after another few trillion are promised prior to the election even tick back up.)
With rates already down over a percent from peak, and purchase mortgage applications not picking up accordingly, what will their excuse be then?
“Hasn’t the 10 year and subsequently the mortgage rate already factored in the first many Fed cuts?”
Yes. And that’s an underappreciated point in my view. Every point on the curve is discounting deep Fed cuts. Additional outsized declines in long-end UST yields will probably require a material slowdown in growth and/or more labor-market softening.
That, in turn, raises this question: In the event the economy does evolve such that 10-year yields fall further, pulling mortgage rates lower, will that economic deceleration manifest as job (i.e., income) losses that mute or otherwise offset any incremental demand increase for homes that might otherwise accompany a return to five-handle mortgage rates?
My guess, for now, is that the answer’s “no.” That is: It’s probably the case that the labor market won’t turn hard enough to offset an increase in demand for homes even in the presence of a mild recession that pushes yields and mortgage rates lower.
But you never know. And you also have to factor in the possibility that in a recession, resale supply will be forced onto the market as homeowners who lose jobs sell to raise cash and/or to downsize.
Forgive my Economics 101 take, but if supply and demand both increase at the same time, wouldn’t home prices move mostly sideways? (Unless of course they should move higher which is what they always seem to do.)