How ’Bout Those Housing Doom Predictions

A few months ago, the internet was filling up with predictions that we’d have a 2008-style crash in home prices. The thinking was that the increase in interest rates would cause mortgage payments to skyrocket and price out an entire generation of homebuyers.

Hasn’t happened.

In fact, in some parts of the US, the housing market is as strong as ever. Why is that? Well, what people didn’t consider is that there isn’t a lot of inventory out there, and you have people who are basically price-insensitive buyers—they must buy a house, no matter what. For sure, the prospect of bigger mortgage payments has deterred some buyers at the margin, and that is reflected in the home sales data, but prices simply haven’t come down all that much.

Perhaps a better way of thinking about this is not so much that interest rates went up a lot but that they went up from extremely low levels. The current level of interest rates is actually normal—the low-interest rates we had before were abnormal.

Interest rates rose, there was an adjustment period, and now people have adjusted to the higher level of interest rates. You would have expected prices to adjust much lower to account for the higher interest rates, but that simply hasn’t happened.

Weird, right? This has made a lot of people look foolish with their housing doom predictions.