11/19/2023 0 Comments Housing bubble us![]() This is already translating into falling new home sales, although it must be said that the appetite of cash buyers has declined at similar rates with the proportion of cash-only transactions for new homes holding steady at 30%.Īdmittedly, the new home sales number did jump 29% MoM in August as the chart below shows. With fewer people able to raise the money required for a deposit given inflation and financial asset price falls and then fewer people still who can afford the required monthly mortgage payments, it is little surprise that mortgage applications for home purchases have fallen more than 30% year to date. ![]() By point of reference the typical new annual mortgage payments for a home purchase equated to 26% of median incomes in the fourth quarter of 2019 and 37% at the peak of the housing bubble in 2006.ĭemand is capitulating and transactions are slowing On an annual basis this equates to 43% of the median pre-tax household income. Today it is over $2,600 based on a 30Y fixed rate mortgage for $411,700 at 6.52%. It was $1,550 per month at the start of the pandemic when the typical mortgage size was $350,000 at 3.4% fixed for 30 years. The combination of higher borrowing at higher interest rates means that the monthly payment on a new 30Y fixed rate mortgage at the prevailing average mortgage size and the prevailing mortgage interest rate has risen rapidly. This increasingly hawkish message from the Federal Reserve has resulted in longer dated Treasury yields moving sharply higher, which in turn has been the catalyst for the typical 30Y fixed mortgage rate rising from below 3% in November 2021 to 6.52% as of last week. We expect them to raise the Fed funds target range to 4.25-4.5% by year-end from the current 3-3.25% level. The Federal Reserve has been raising interest rates swiftly since March as inflation continued to surprise to the upside. Then there is the cost of financing a mortgage. The typical 30Y fixed mortgage rate has risen from below 3% in November 2021 to 6.52% as of last week Homeowners looking to trade up are in a better position, already partially owning an asset whose price is moving in the same direction, but it certainly isn’t easy. Falling equity markets and tumbling bond prices are further hampering new buyers’ ability to build enough for the required deposit. Yet the challenges for first-time buyers to save for a deposit are mounting, especially with surging inflation squeezing spending (and saving) power. ![]() This indicates homeowner equity has been rising significantly as a proportion of the funds used to make a home purchase. ![]() The average new mortgage taken out for a home purchase did rise to $450,000 between January and April, but this has subsequently declined to a $413,000 average for May-September 2022, not that far above the $403,000 average for the whole of 2021. Rapidly rising house prices are typically associated with larger mortgage borrowing. ![]()
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