US Housing Market: Why High Mortgage Rates Are Freezing Home Sales

During their recent episode, Taylor, Carlisle, and Todd Wenning discussed US Housing Market: Why High Mortgage Rates Are Freezing Home Sales. Here's an excerpt from the podcast:

[Todd]

In the US? Yeah, in the US, I think we're just at a, at a freezing point right now. There's just things aren't moving.

Just thinking about the interest rates, I don't even know how people are affording houses over a certain level with 7% mortgages at the current asking prices. And so that's getting, that's getting, we're coming to a head, I think there. And I think we might've already, already hit it.

And you see the new home builds just froze up. I think for a while there, the new home builds were an option for people because they were buying down the mortgage rates. But that, but that requires people to want to live further afield because the home builders can't find any available land near cities.

And that was at a time when work from home was still a valid option for most people. And so you could live, you know, 20 miles from the city centre, 30 miles from the city centre, drive into town two days a week, and it might've, might've worked. But now if the company's saying, Hey, you got to be here every day, that shifts the equation to, Hey, you got to live closer to the city.

And that means newer home builds are just not as good of an option as they were before. And so that means higher prices. And so it's, I think it's just been just a tonne of pressure on the potential homeowners.

You know, we, we bought our house, what was that? 11 years ago now. The game has changed, you know, in terms of the affordability it's, I do feel bad for people looking for, for homestay.

I'm not sure how they make it work without support from a family member or some other means.

[Tobias]

I've been watching Nick Gurley, who has some housing commentary and he, he has the, he tracks the two rates, mortgage rates and house prices. And a lot of the housing industry folk realtors and so on think that the problem is higher rates. And that if you cut rates, you get a flood of people back into the market.

But I just don't think the math maths when you, when you look at it, because just to go back to those long run rates, doesn't really improve profitability enough. And we've got the result of it is, as you point out, there's that freezing where there's fewer transactions going through than the credit crisis at the very bottom, which is kind of amazing. And you've got to go back 30 years in the data to find comparable transaction volumes when the population was much, much smaller.

So it really is. I don't know what the solution is. It takes a long time to kind of unfreeze, but it seems like it's a hangover from like the post pandemic stimulus and all of the sort of stuff that went on around then.

And we're six years into that.

[Jake]

So it's yeah, I'm freezing anytime soon. Unfreeze is one, one boomer dying at a time. Is that kind of how it's going to work?

I don't know, maybe.

[Todd]

Yeah, it may. It may be the case. I've seen studies that show that we have all the supply that we potentially need, but that's, I think it's tricky.

I think because national home numbers does not tell you everything because it's where people want to live. That's where it matters. So you could have homes in areas that nobody wants to live in.

Technically, someone could live in them, but it's not going to solve the problem. It has to be near where people want to live. But I think in terms of how this might turn into, it might impact house remodelling is it probably forces people to stay in their current location a lot longer, right?

If you, then they might otherwise would, right? Instead of upgrading to a larger house, maybe say, hey, how can we, how can we refit the current house that we have? Because, you know, we have a 3% mortgage, let's say on this house and jumping out and getting a 7% mortgage just jumps my payment every month, like doubles, triples potentially.

But I could stay here and make this house work. You could see some tailwinds from that if rates come down a little bit because you can justify maybe making that investment in your existing home versus trying to jump out and go somewhere else.