A big drop in housing demand should come as no surprise with rising interest rates and a cooling economy. When money chases prices that’s speculation, not investing. Investing is about income and increases in that income over time. CNBC’s Diana Olick reports on the housing market cooling off, writing:
Rising mortgage rates and inflation in the wider economy caused housing demand to drop sharply in June, forcing home prices to cool down.
Home prices are still higher than they were a year ago, but the gains slowed at the fastest pace on record in June, according to Black Knight, a mortgage software, data and analytics firm that began tracking this metric in the early 1970s. The annual rate of price appreciation fell two percentage points from 19.3% to 17.3%.
Price gains are still strong because of an imbalance between supply and demand. The housing market has had a severe shortage for years. Strong demand during the coronavirus pandemic exacerbated it.
Even when home prices crashed dramatically during the recession of 2007-09, the strongest single-month slowdown was 1.19 percentage points. Prices are not expected to fall nationally, given a stronger overall housing market, but higher mortgage rates are certainly taking their toll.
The average rate on the 30-year fixed mortgage crossed above 6% in June, according to Mortgage News Daily. It has since dropped back into the lower 5% range, but that is still significantly higher than the 3% range rates were in at the start of this year.
“The slowdown was broad-based among the top 50 markets at the metro level, with some areas experiencing even more pronounced cooling,” said Ben Graboske, president of Black Knight Data & Analytics. “In fact, 25% of major U.S. markets saw growth slow by three percentage points in June, with four decelerating by four or more points in that month alone.”
Still, while this was the sharpest cooling on record nationally, the market would have to see six more months of this kind of deceleration for price growth to return to long-run averages, according to Graboske. He calculates that it takes about five months for interest rate impacts to be fully reflected in home prices.
Action Line: If you want to build an investment portfolio based on generating income and compounding, I’d love to talk with you. If you want to get to know me better before we talk, click here to sign up for my free monthly Survive & Thrive letter.
E.J. Smith - Your Survival Guy
Latest posts by E.J. Smith - Your Survival Guy (see all)
- Investing Habits of the Fairly Wealthy: #10 Powerball - September 29, 2023
- Your Survival Guy: “Life on Main Street Hasn’t Been This Hard in a While” - September 29, 2023
- Your Retirement Life: Striped Bass Fishing off Block Island - September 29, 2023
- “Then One Day the Grandfather was Gone” - September 28, 2023
- How Joe Biden Raised Oil Prices - September 28, 2023