Housing and Mortgage Update

I haven’t talked about housing in a long time, so I wanted to provide a brief update on some recent metrics related to residential housing and mortgages.

New Home Prices and Sales
There continues to be a shortage of homes for sale. “The overall number of active listings were down 26%…compared to the same period last year.And we know last year experienced a severe decline of inventory from the year prior.

Inventory dropped to about 400,000 in January 2022 from about 1,000,000 in January 2020.

Add to that skyrocketing costs for materials and high demand for homes (due to stimulus, ultra-low interest rates, working from home dynamics allowing more sprawl and desire for different spaces in the home), and it becomes obvious why home prices have likewise skyrocketed the last couple years.

From October 2019 to October 2021 the median sales price for new homes increased almost 31%!

However, it appears sky high prices, low supply and rising interest rates are starting to take a toll on potential buyers as new home sales were down 14% in November from the year prior.

Mortgages and Rates
The average purchase loan size has set a new record at $453,000.

30-year fixed mortgage rates have jumped to about 4% from about 2.8% in the summer of last year. On a $450,000 mortgage that’s about a $3,600 / year difference.

Looked at another way, if a prospective homebuyer’s budget is $2,000 per month for principal & interest that reduces their mortgage to about $419,000 from about $487,000. That’s a big difference in what they can afford (not including effects of lower insurance, property taxes and down payment).

With higher rates, refi’s have slowed down dramatically as so many people already refinanced in 2020 and 2021.

I also wonder if potential sellers might be hesitant to sell and move knowing they’re giving up a 2.8% mortgage in exchange for a 4.0% mortgage?

New Construction
However, I don’t believe the supply shortages will persist indefinitely. When we experience a shortage of an economic good, and prices are simultaneously high for that good, producers and manufacturers rush to fill the void and capitalize on the higher profits effectively fulfilling demand with additional supply. However, sometimes, we end up OVER-building and producing too much (think 2008), which then puts downward pressure on prices and wastes precious resources (land, labor and capital) used to build homes that sit vacant after the bust.

In fact, right now “some 1.5453 million homes are currently under construction (single- and multi-family units), the most since 1973.” (see chart below)

Notice the Boom-Bust cycle in action in this “Homes Under Construction” chart going back to 1970.


So, between a bunch of supply coming on the market and higher interest rates (and other factors) that may reduce demand, I could foresee another situation where we over-build and housing prices actually stagnate/decline for several years. I’m not calling for a housing crash necessarily, but it’s unreasonable to expect the next few years to look like the last few years. Nobody should be surprised if many recent homebuyers end up underwater on their recent home purchases especially for those that haven’t put 20% down.

Also, it amazes me how many young people I see on social media making videos about how to buy multiple homes using leverage, cryptocurrencies, etc… It’s like 2008 all over again but with greater ubiquity of social media (here is just a recent example of many I’ve come across seen).

Falling home prices influence spending because for many households the home is their most valuable asset and they tend to spend more when their home value is increasing regardless if the spending is for the home itself (e.g. home renovations) or other things. When that large asset falls in value they tend to tighten the reins.



Past performance is no guarantee of future results. All investments maintain risk of loss in addition to gain.

Data from third-parties is believed to be reliable but accuracy is not guaranteed. Much of the data used to interpret the markets and forecast returns are often at odds with each other and can result in different conclusions. Many different factors impact prices including factors not mentioned here.

This is not investment advice but merely a general commentary. Individualized investment advice cannot be provided until a thorough review of your unique circumstances and financial goals is completed.

Views provided here are current only as of the moment of posting and are subject to change at any time without notification.

Print Friendly, PDF & Email