Recently, resident bears have increased their rhetoric by calling out deterrent mistakes.
It’s not some crazy idea with house prices that are clearly unaffordable. And the mortgage rate is nowhere near 3% anymore.
but in general A crash or bubble will precede creative financing.
Back in 2006, the mortgage was zero. Specified income loans, ARMs, alternatives, etc. are much worse.
Today, the culprit is the higher-priced 30-year fixed mortgage, which is not a constructive thing.
The home seller is currently unable to sell.
The housing market right now is very strange. Even if homeowners want to sell, they often can’t.
Or have little desire because of the peculiar mortgage rate environment.
In short, most current owners have mortgage rates at or below 5% per the latest HMDA data, and most hold 30-year fixed-rate mortgages.
Some people call these home loans “internal loans.” “Golden Handcuffs” because they trap the owner of the house. But it also gives something valuable.
The problem is that these homeowners can’t move because you can’t mortgage it to you.
Consider a homeowner who bought a property in 2018 for $500,000, then refinanced it in 2021 when the 30-year fixed rate is below 3%.
Let’s pretend that their property is now worth $700,000 and their loan amount is over $360,000.
Their monthly principal and interest payments are about $1,550. What a steal.
Now consider that they are looking for a bigger home to accommodate their growing family.
The asking price is $850,000 and the mortgage rate is 6.5%. If they placed a 20% down payment, a $680,000 loan at 6.5% would cost nearly $4,300.
We’re talking about a nearly 200% increase in mortgage payments, and this is not a normal situation.
99% of borrowers hold mortgage interest rates below market rates.
The new chart has been released from Goldman Sachs as show 99% of outstanding mortgages are priced below Freddie Mac’s weekly survey rate.
The survey rate is 6.65%, meaning that almost all existing homeowners have mortgage rates below that.
If you look closely, 28% of current owners have rates below 3% and another 44% have rates below 4%.
That’s 72% of current properties with mortgage rates below 4%. Do you expect them to trade for a mortgage rate of 6.5% or even 7%?
For 99% of homeowners with a mortgage little motivation (or desire) to move from a mortgage finance standpoint
Of course, certain circumstances may warrant a move, and about 42% of U.S. homes do. Clear and Burden Free Ownership (no need to attach home loan)
But this makes the housing market different than what it saw in 2007.
The landlord was unable to live in 2007.
Back during the Great Recession of the housing market. Another chart is circulating. And it doesn’t look like the current chart. In fact, it’s quite the opposite.
It lists hundreds of billions of adjustable-rate mortgages (ARMs) that are scheduled to reset in the coming months.
when resetting I mean tune it up a lot. Whether the payment is fully amortized from the negative amortization. (or from only interest)
or those who just adjusted to all indexed rates after the initial teaser rate ran out.
in any case Payments are expected to increase significantly. This is likely to lead to a shock in payment. and more importantly Mortgages that can’t be paid
And keep in mind that many of these homeowners are ineligible for an initial mortgage.
The charts included in the chart include options, ARMs, subprime loans, Alt-A mortgages, and a list of benchmarks and agents.
This chart is awesome and basically sums up the unsustainable housing market in one graph. On that day, The landlord cannot stay..
So for those who want to draw a parallel between now and then You may want to check both charts side by side.
Of course, house prices are inflated right now. And mortgage rates are expensive. But it’s not the same housing market.
Yes, something has to be given. But I don’t know if existing homeowners will dismiss mortgage interest rates below 4%.
What we need for a good housing market is long-term fixed mortgage rates back in the 4-5% range.
This will be helpful for new buyers. Existing homeowners who want to move and even Fed!