Opinion: Mortgage interest rates have a smaller impact on your home than you might think.here is the proof

If we don’t learn from history, we are doomed to repeat it.

From 1998 to 2006, according to freddie mac, Median Annual Mortgage Rate was 6.45%. At the same time, the median sales of second-hand homes, the annual average was his 5.63 million units. Therefore, 1996 saw more home sales than this year.

Mortgage interest rates today are not as high as they were then. But today there are 30 million (129 million) more households for him than there were in 1996 (99 million).

It shows how the failure to build enough homes from 2006 to the present, combined with ultra-low and unrealistic mortgage rates and massive fiscal stimulus, will impact the housing market. I’m here. This is something that housing industry leaders should consider carefully.

housing history

In 1978, the number of second-hand home sales reached 4 million units for the first time. From that level in 1980 he decreased by 25.3%, in 1981 by another 18.8% and in 1982 by another 15.9%. From 1978 he rose to the 1982 low and in 1983 he rose 39% from the 1982 low.

One of the challenging historical facts is that while mortgage interest rates fell from 13.24% in 1983 to 7.81% in 1996, by the time home sales reached 1978-1979 levels, It just took that long. 16 million — just about a 20% increase in the number of households at a time when home sales were virtually flat for his 17 years.

The next major decline that began in 2006 saw sales decline by 10.3% from 2005 to 2006, another 22.4% from 2006 to 2007, and another 20.9% from 2007 to 2008. It decreased by 2.6% from 2008 to 2009. The decline in total sales from the peak in 2005 to the trough in 2008 was 44.9%.

It is commonly understood that 2003-2005 sales were fueled by fraudulent mortgage activity. Nevertheless, sales in 2021, a record year, were only 4.1% higher than in 2003. The average annual interest rate on mortgages isn’t much lower than when he was 6.54% or now.

How much affect mortgage interest rates?

Some of this data may indicate that mortgage rates have less of an impact on home sales than we believe. Other factors, particularly related to median household income, may have contributed to the explosive price increases over the past two years.

Back to what went wrong. The shortage of new housing, both single-family and multifamily (supply), has historically been overwhelmed by the availability of cheap mortgages and the enormous financial power of households.Recently Federal Reserve Board the estimate is that American households have about $18 trillion Cash and marketable securities held.

This is basic economics. Inflation occurs when demand exceeds supply.

It is estimated that 4 to 5 million more homes have been built than housing of any kind has been built since the actual housing market began its last recovery. Demand collided with supply and overwhelmed it. With too few houses and too much capital, the value of houses, apartments, and undeveloped land to build them exploded. This has resulted in a massive affordability drop.

The Fed’s attempt to cool the economy to keep inflation in check is necessary for many reasons. One of the biggest reasons is to soften housing prices so that affordability becomes a reality. But if the country doesn’t find a way to significantly increase the supply of all kinds of housing, we’ll be back where we started.

Steve Murray real trend Founder with RTC Consulting.

This column does not necessarily reflect the opinion of the editorial staff of RealTrends and its owners.

To contact the author of this article:
Steve Murray smurray@realtrends.com

To contact the editor responsible for this article:
Tracey Velt at Tracey@hwmedia.com

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