The Housing Market is Worse Than You Think

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What I am about to share with you is an excerpt from a fall letter I wrote to IMA clients. It is long; therefore, I’ve divided it into two sections. Today I’ll discuss the (sorry) state of the housing market; tomorrow, I’ll discuss the economy.

The housing market is worse than you think

In this letter I’d like to explore the impact interest rates will have on the economy and especially the housing market.

Currently, the 30-year mortgage rate is pushing 7.6%, up from less than 3% a year ago, while the median house price in the US is up 37% from $320k in 2019 to $440k today. You cannot have both interest rates and housing prices making new highs. Something’s got to give.

Let’s start with new home buyers, as they’ll be impacted the most.

If you are a first-time home buyer, you don’t have home equity to roll into a new purchase. If you bought a house in 2019 for $320k (assuming you put down 20% of the purchase price as down payment), your annual mortgage payment at 4% would have been $15k.