Lower Mortgage Rates Aren’t Helping The Market Anymore
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Jonathan Miller contends that today’s insanely-low mortgage rates aren’t doing any more good for the housing market.
I matched year-to-date sales volume where a mortgage was used and mortgage rates broken out by conforming and jumbo mortgage volume.
Mortgage volume has been falling (off an artificial high I might add) since 2005, while rates have continued to fall to new record lows, yet transaction volume has not recovered. I contend that low rates can now do no more to help housing than they already have.
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Five years of falling mortgage rates have only served to provide stability in volume.
I’ve got some of thoughts of my own to add:
- Sales volume would be a good amount higher if there were actually homes available to buy. Supply is so low that the numbers are skewed.
- Of course, if supply was normal, home prices could easily be falling, not rising.
- While lower rates may not make any more difference, higher interest rates certainly could. When rates begin to tick higher, home prices may feel pressure once again. However, I don’t see any reason for this to happen any time soon.
- We are in a precarious position because there’s not much more that Uncle Sam can do to prop up the market, and yet sales volumes are still anemic.
Greg, thanks for today’s thoughtful posts. The inventory of homes in the under $1MM range here that are appropriately priced is almost zero. And low rates may be nice, but until people see some stability in real wages and maybe even slightly rising real wages most won’t be seriously considering the purchase of a home. The distribution of wealth in our country resembles the less equitable south american countries and that’s part of the systemic problem.
Yes, thank you, Greg. Also, uncertainty may be playing a factor in home purchases. Until people see the economy growing more steadily, rather than weakly, some people may hold off on home purchases, despite low interest rates. While consumer confidence has rebounded, people may need to feel more confident than they are before buying a home, compared with spending at a retail store. Business spending, which usually leads a recovery, jumped 1.7 percent in October, Reuters reported. The increase was a surprise for economists, but we need a couple more months of increases to see if a trend is starting.
As someone wanting to buy, I’m not because — exactly to Greg’s point — there’s nothing TO buy. Inventories have to change before people even look. It’s discouraging. A potential buyer like me wants to go shopping.
For now, my money’s sitting in bonds.