Quote:
Originally Posted by ASAP
I have an feeling we will see something very interesting happen with housing... i don't know what that is exactly but if rates go up again, here is what I could see-
- Sales / Purchases completely grinding to a halt...
- realtors, loan originators will have to look for other work
- unemployment will tick up
- inventory will still be low - hence again, people that bought at low rates will be stuck forever... people that didn't buy won't find it valuable to buy
- housing starts and construction will grind to a halt
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There will be an adjustment. We've had 40 years of declining interest rates combined with effective (crisis induced) 0% interest rates for significant periods of time over the last 15 years. As noted earlier - asset values will need to be re-priced as a result, which means pain, and a slog.
Between 1995- 2008 mortgage rates ranged between 6.6% - 9.25%.
They dropped to sub 5% in 2009 and dropped to 2.6% during COVID.
I think rates will stay higher for longer and this is going to cause some cascading pain for multiple industries - CRE and residential being primary beneficiaries of this pain.
Issue right now is that there's no inventory: 2/3rds of mortgages right now are with sub-4% mortgages. Getting these owners to trade up to a near 7% rate is going to be hard, especially if prices haven't re-aligned.
Over the last 2 years, over $300 billion in cash out re-fis occurred in the residential market. Arguably, this has helped consumers keep up spending. If home values begin to re-price down, this hoovering up of liquidity is going to be felt broadly.
Sadly, I think we're just in store for a slow motion economic beating that's got legs to run for a solid 10+ years, unless we hit a Minsky moment and the rug gets pulled out suddenly. If that happens, all bets are off.