A weekend topic starting with the Globe and Mail in Canada. “‘When you can borrow money for 1.5 per cent a year and invest it in an asset rising 20 per cent a year, you have to be an idiot not to sign up for that deal,’ says John Pasalis, a real estate researcher and owner of Realosophy Realty Inc., a Toronto real estate brokerage.”
The New York Post. “A million dollars may sound like a lot of money to spend on a house, but in more US cities than ever, it’s just the average. According to Zillow, a record-breaking 146 American cities surpassed the million-dollar mark in 2021, the most ever recorded to breach that price point in a single year.All those freshly minted locals have brought the total recorded number of US cities in which an average crib goes for $1 million or more to 481 total. To put that number into perspective, 2021 saw the addition of more $1-million cities than the past six years combined, and triple the number added in 2020.”
“Zillow reported some outliers are in more surprising areas. These include Idaho, Montana and Tennessee — states that, before 2021, had never had a single city in the million dollar club. ‘[We’re] seeing how the geography of wealth in the US has begun to shift, as 2021 was the first year for both Idaho and Montana to place any cities on this list, and now those Western states boast three million-dollar cities each,’ Zillow economist Jeff Tucker wrote.”
From NerdWallet. “The 30-year mortgage rate has risen rapidly to its highest level since 2019, around 4%. A few days before Christmas, the 30-year mortgage averaged around 3% APR. Tuesday, it averaged 4.03% APR. Let’s say you can afford $2,000 a month in principal and interest on a mortgage. If you started looking at homes before Christmas, when the 30-year mortgage was around 3%, you could have borrowed about $474,400 to get a $2,000 monthly payment. But with a mortgage rate of 4%, you could get a $418,900 loan with that same $2,000 a month in principal and interest. That’s a reduction in affordability of about $55,500.”
The Times Standard. “The housing market may be showing signs of cooling off across the rest of the country, but things are still red hot in Humboldt County. Even though median home prices in the county dropped 5.6% from $450,285 in December to $425,000 in January, prices are still 16.1% higher than January 2021 when they were around $366,000, according to the California Association of Realtors. Jordan Levine, chief economist for the California Association of Realtors, said in a statement that he expects the favorable lending environment won’t last long.”
“‘A surge in interest rates in the past few weeks is concerning and will likely create affordability headwinds for buyers, which may result in housing demand being curtailed in the upcoming months,’ Levine said.”
From Florida Realtors. “The Jacksonville area’s booming housing market has left home values a little inflated, say a pair of academics warning that flush times for home-sellers across the state could be ending. If the researchers’ expected pricing was correct, overpaying has apparently become standard nearly everywhere. The researchers aren’t forecasting a market collapse, but they say the crush of buyers that drove up prices nationwide last year could soon taper considerably.”
“‘Mortgage rates have been near historic lows for the last two years and have helped keep housing demand strong through the pandemic,’ said Florida International University professor Eli Beracha. ‘Now we’re seeing rates rise, and that’s going to take some buyers out of the market and curtail price gains.’”
The Portland Press Herald. “Maine’s housing market has been tough for moderate-income buyers since the start of the pandemic, and with scant inventory and rising interest rates on the horizon, it’s only going to get worse. Real estate experts say an expected jump in mortgage rates will further squeeze an already tight market as the Federal Reserve attempts to tamp down rising inflation.”
“As interest rates climb, what people can afford will go down, said Leo Bourgeault, a real estate agent with Coldwell Banker in Saco. ‘Instead of a $400,000 house, they’re going to have to buy a $300,000 house, which you can’t find,’ he said.”
From Coastal Illustrated on Georgia. “The past two years have been among the busiest for Realtors in the history of the Golden Isles. In the Golden Isles, the average sales price in March 2020 was $363,478, rising to an average of $511,918 by July of the same year, and increasing to an average of $606,192 in September 2020, said Realtor Sherrye Gibbs. ‘By 2021, the average sales price leveled off to the mid-$500s and in the first two months of 2022, prices are averaging just below $500,000,’ Gibbs said.”
“Nearly two months into the year, Gibbs said it appears housing prices are leveling off. ‘With the promise of rising interest rates on the horizon, I believe that prices will remain stable, but do not expect a major correction,’ she said.”
The Valley Record in Washington. “‘It’s nutso right now,’ said Karin Simpson, owner of the downtown North Bend-based Simpson Realty Group. ‘I have buyers sitting on the sideline who are waiting and waiting — then they see a house and there’s 20 offers on it.’”
“In Snoqualmie, housing prices in December 2021 were up about 20% compared to last year, at a median sale price of $1 million, according to Redfin. Current median housing prices are just below the five-year high of $1.1 million set in May 2021. North Bend is following a similar trajectory, seeing median housing prices in December 2021 rise roughly 13% from last year, for a median sale price of $936,000. That sale price is also near the city’s five-year high of $1 million set in Oct. 2021.”
From Stuff New Zealand. “Housing affordability in New Zealand has deteriorated to the worst level on record, with the average property worth 8.8 times the average income at the end of last year, a property analyst says. That ratio was up from 8.3 just three months earlier, and from 7.0 in the last part of 2020, according to CoreLogic’s latest housing affordability report. It was significantly higher than the long-term average of 5.9, and than previous cycle peaks of 6.1 in 2007 and 7.0 in 2016 to 2017.”
“CoreLogic chief property economist Kelvin Davidson said the mechanics behind the ‘sharp’ decline were simply that steep house price rises had far outpaced any increases in the average household income. ‘Since March 2020 when Covid hit, property prices are up 38 per cent while household incomes rose by less than 3 per cent.’”
From News.com.au. “Homeowners across the country might have to pay higher mortgages as early as June, with signs indicating interest rates will rise by then. That could spell disaster for an estimated one million property owners who have never lived through a rate hike before as they have only recently entered the market. Although a 1 per cent rise sounds like a tiny amount, it could add hundreds or even thousands of dollars extra every month for the average Australian mortgage.”
“It’s not just relatively new homeowners that will feel the sting of higher rates, either, warned Gareth Aird, the CBA’s head of Australian economics. People on variable home loans would of course be impacted immediately by the rate hike. But the rising cash rate would also soon catch up with those on fixed mortgages. Mr Aird said a whopping $500 billion worth of fixed home loans was set to expire over the next two years, putting them at the centre of the rate hike.”
“‘As a result, borrowers rolling off fixed rates will be refinancing their loans at a materially higher interest rate, which will have a significant impact on the interest cost of debt and household finances,’ he added.”
From RT News. “The US real estate market could crash this year, leading economist Desmond Lachman predicted in an interview with Nikkei Asia. Adjusted for inflation, house prices in America are now higher than they were 15 years ago, before the last housing bust, he added. According to Lachman, the trigger for the real estate market collapse would be a hike in interest rates, which is expected to be introduced by the US Federal Reserve in March in an attempt to curb soaring inflation.”
“‘Those bubbles in the equity and the housing markets, they’ve been premised on the assumption that interest rates would stay low forever. So, as soon as the Fed starts raising interest rates in an aggressive way, there’s the real risk that it bursts the asset price bubbles and that could, then, move us into a recession,’ Lachman said.”
From The Street. “With every new piece of inflation data and every market reaction from bond traders, one thing becomes blatantly clear – the Fed has really let this thing get away from them. It’s amazing to think that as of this point today, interest rates are still at 0% and the Fed will buy another $30 billion in Treasury securities in February even though the inflation rate is at 7.5%, Treasury spreads are plummeting and GDP growth expectations are getting slashed.”
“I don’t expect to see any kind of emergency rate hike this week from the Fed, but, if it’s truly looking to solve this inflation problem, it’s going to need to hike rates so aggressively that’s it almost certain the central bank is going to overshoot. History has shown us that the Fed only acts months, if not quarters, in arrears, long after the damage has been done.”
“The Fed has a history of a ‘bend until it breaks’ approach and the current environment may be the most shining example of them all. Even as economic growth was recovering rapidly and the unemployment rate has falling, the Fed continued with 0% interest rates and tens of billions of dollars worth of QE. ‘There’s no inflation’ and ‘inflation is transitory’ were the justifications even as it seemed inevitable that all this liquidity was eventually going to lead to something negative.”
“Inflation did show up and the Fed did all it could to talk it down, but the year-over-year rate is now at 40-year highs and may not have peaked just yet. Now, we’re nearly through an economic cycle and the Fed has just now decided to raise interest rates for the first time – into a period of economic decline and heightened recessionary risks. Maybe the Fed steers us through this, but I see no reason to believe that this likely won’t end up being a big mess again.”
“As I say often, the bond market gets it right far more often than the stock market does. We’d be wise to pay attention to the signals. It’s possible stocks squeeze out more gains in the short-term if the Fed doesn’t surprise on its policy decisions, but the bill looks like it’s about to come due.”