Mortgage Rates at 23 Year high

The Fed's efforts to create a re set in the overheated real estate market have taken us to rarefied air.

Media is reporting rates at 8%, the highest in 23 years, but actually it's worse than that. I priced out a loan yesterday on some units im doing due diligence on, 20% down, 790 Fico rate was 8.625% 30 year fixed. Owner occupied 8%. Hard to cash flow unless prices start dropping by at least 20%. Which is not happening right now. I support the Feds efforts to bring prices and rents down but higher rates aren't going to create more inventory. I see a slight tightening of underwriting but no credit crunch in residential lending. An increase in widespread layoffs is still the missing ingredient.

On the flip side of the rate increases, sun is shining on investors, I saw a CD being advertised at 6.50% yield the other day. And the 10 year T Bill at is 4.98% and predicted to blow past the 5's soon. I have always said I'm not a CD guy but these rates are getting attractive.

7 comments

7 Comments

Brad Stevens

Oct 19, 2023

Saw this vid after I posted below. If you have a few minutes, could you tell me what you think? Thanks

Not a gloom n doom guy, IMO. More of 'what if.'

Edited

BigBallss

Oct 20, 2023

Replying to

Good video, agree with almost everything.

The Fed stepping away from its policy of buying mortgage backed securities (MBS) and putting them on its balance sheet is creating a huge bear market pressure on MBS. It's driving rates up to get any bids from investors.
We are clearly heading into a period of long term high rates. Think the late 70's to mid - late 80's. The financial markets are acknowledging and accepting that fact.
Even with high rates and crushed affordability, demand for housing is still very strong. It's the supply ( homes for sale or inventory) that is tight. As long as demand remains strong and supply low, we are not going to see price drops. That was proven in July when mortgage rates retreated activity and sales jumped. Rates went back up and activity slowed. As the video says, in the short run declines in inventory will lead to increased prices. A growth in inventory will lead to price drops but where is the inventory going to come from? Only massive widespread layoffs across various sectors can do that. People sell for many reasons, job relocation, divorce, death but the biggest factors, the ones that creates the most inventory is loss of job and moving up to buy a bigger house. The job market is robust beyond belief right now, and no one is giving up their 3% rate to buy a bigger house at 8%. Not happening.

Conclusion and just my 02 cents, we are in for a repeat of the 80's, a long period of high rates with flat annual appreciation rates of 1-2%, which is negative in real terms ( adjusting for inflation).

Real estate people have a catchy phrase right now, "survive 'til 25". We will see low volume activity but no big price drops until the job market breaks.

By the way, last year realtors had another catchy phrase, "marry the house, date the rate ". In other words buy now refinance when rates drop. Except rates are increasing and not dropping. Eventually rates will drop, but if values drop as well, those buyers will be underwater and won't qualify to refinance. Many will walk and choose to default. Seen that movie before.

I have more but will stop here to avoid a terribly long (er) post.

Edited

Onikoroshi

Oct 20, 2023

Replying to

makes you wonder when they will re-weaponize the Community Reinvestment Act of 1977, no?

Brad Stevens

Oct 19, 2023

Yep, people are holding on to what they have. As far as rate hikes creating inventory, I think it could be just a matter of time. Some people are going to have to move, and for a variety of reasons. I'm also seeing some evidence of the American consumer starting to get stretched. Car repos are waaay up. Credit dept at all time record numbers... Big ticket items are so damn expensive. Not many have cash to avoid financing. I'm not the expert here, so I'll ask you if you think there might be several other factors which could create inventory? Lots of those Gov handouts are over now, student loans etc. But of course I do see Biden wants to continue handing out free money, so who knows.

Yes, never purchased any CDs or Tbills in my life until just recently. Before that I moved some money into a liquid 4.5% rate, which is slightly over 5% now... liquid. There's a guy I know who's now living for free.). I do remind him he'll have to cut a check to Uncle Sam next spring. F'n taxes!

Edited