Sales of both new and existing homes have fallen over the past year, but that doesn't capture the magnitude of the impact on the mortgage industry. Many of the houses still on the market are being sold for cash, and even refis are scarce because so many existing mortgages were refinanced years ago at ultra-low rates. The result is grim:
The mortgage industry is notoriously boom or bust, but this bust is especially bad—and it’s only getting started. Unlike previous housing downturns, there’s no obvious way out. If the economy keeps chugging along, then the Federal Reserve will continue to keep rates high—which would in turn keep the housing market in the dumps. If the economy sinks, the Fed may loosen rates—but a recession wouldn’t do the housing market much good either.
....Some former regulators and industry officials say the current period is worse than the 2008 financial crisis, when at least falling rates spurred a large refinancing wave. Because so many borrowers already locked in ultralow-rate mortgages during the pandemic, there’s no big refinancing rescue on the way. “I’ve been in this business 40 years and I don’t remember a correction like this,” said David Stevens, a former housing-finance regulator who now consults for the industry.
Before the pandemic big banks were writing about $150 billion worth of mortgages each quarter. That rose during the recent housing boom but has since plummeted by more than half from its normal level:
If you're in the real estate biz, the economy seems terrible no matter which party you belong to.
This is why we can't have nice things (enough housing for example) - the Fed is always ready to step in and ruin it.
Democratic politicians are afraid to criticize the Fed although its objectives are not consistent with those of the party, even discounting deliberate partisanship.
Of course when Trump wanted a rate cut, Powell and the Fed gave it to him.
Et voila the demonstration of the usual innumerate Have the Cake & Eat it Too.
And then the Partisan cherry picking to make bankrupt assertions of partisanship (as of course Powell does not make solo decisions [this sort of idiotic discourse being on par with the partisans that blame the opposite party president for oil prices and the like] and Democratic party appointees are amongst the technocrats who have correctly seen inflation risk as needing to be addressed).
Add in the incorrect and innumerate assertions of rate rises only taking effect recently showing a fundamental lack of understanding of rate transmission (or parroting Left / Drum incorrect observations)
Housing availability is driven principally by land regulation and land availability constraints, and blaming mortgages returning to the normal long-run average interest rate levels pre-2008 financial crisis is ignorant populist nonsense.
And for reference, the Federal Open Market Committee (https://en.wikipedia.org/wiki/Federal_Open_Market_Committee) which one can profitable examine the number of Democratic appointees:
Members
Jerome Powell, Board of Governors, Chairman
John C. Williams, New York, Vice Chairman
Michael S. Barr, Board of Governors (NB: Mr. Barr is Vice Chair of the Federal Reserve for Supervision)
Michelle Bowman, Board of Governors (NB: Ms. Bowman occupies the Community Bank seat on the Board)
Lisa D. Cook, Board of Governors
Philip N. Jefferson, Board of Governors (NB: Mr. Jefferson has been nominated for Vice Chairman of Federal Reserve)
Christopher Waller, Board of Governors
Austan Goolsbee, Chicago
Patrick T. Harker, Philadelphia
Lorie K. Logan, Dallas
Neel Kashkari, Minneapolis
Of course for the Populist conspiracy theorists, DINO/RINO and corporate-shills/globalists are the ready made excuses to maintain their conspiracy theory.
The mortgage industry did have a super boom period because of record low mortgage rates, and when rates went up it was a shock. They couldn't expect the boom to go on forever.
After the 2008 crash and finance companies struggling to recover, we got an offer for a 5-1 ARM from BoA through Merrill-Lynch (they were our financial advisors and handled some of our major IRA as things rolled over, now they were a subsidiary of BoA.
The terms were, strange. No points or fees, 0% interest for the first 5 years, NO PRINCIPAL PAYMENTS for the first 5 years!!! I asked our rep how BoA expected to make money - and he explained the scam. In the hot tech explosion (before 2008) , the sales reps made insane amounts of money in commissions. A few investment and finance companies noticed that around the mid-nineties and targeted them for VERY favorable (and dangerous) mortgage offers. We were approved for an up to $2M mortgage!!!
The hidden bomb was that if you took full advantage of that type of offer, there was the "fine print" - you were not required to make principal payments - but if you didn't, on "float", five years of principal had to be paid back immediately. And if you weren't REALLY successful you could get royally screwed if you hadn't paid attention to that bit of fine print. So they decided to extend it after 2008 to the highly paid SW engineers dreaming of great stock option proceeds. Nasty shits.
We took the deal, and then paid not only the monthly principal, we paid all the interest payments we would otherwise have owed as additional principal pay-down, and by then, we could afford to pay another big chunk on top of that!
And, because I'm a right proper Scots bastid, two months before the float, we refinanced the mortgage and closed on a new one at very favorable terms, no points, low fees, and at a really good dip in interest rates to boot.
I hope my father is still laughing with approval, wherever he may be. I learned a lot of lessons about handling money that few of my engineering collogues knew about.
Well, there's always the commercial....oh, never mind...
I think the way out is that demand stays low enough for long enough that prices drop, a lot? I
Right? Low rates just push prices up and make it for comfortable for corporate buyers/investors to play.
Frankly, I do not weep for the mortgage industry. They've redlined people of color out of the wealth generation pathway, stolen the wealth of millions of people during the housing bubble -- and walked away without nary a perp going to jail. I still firmly believe that the worst mistake Obama made was not draining that swamp in the name of the people he was elected to office to protect.
There are a lot of reasons half the country hates liberals, one of the big ones is that we left all the people who'd been shafted during the bubble twisting in the wind and Angelo Mozilo never lost a moment of sleep. Failure to right that wrong and failure to put a firm stop to Private Equity will be the undoing of Democrats.
We refinanced in June 2021 - catching rates at a pretty nice dip. I'm in no hurry to refinance at a significantly higher rate than what we locked in 28 months ago...
Edit - corrected closing date, I forgot our loan issuer changed service firms last year and used that date by mistake.
There's money to help convert commercial buildings to residential apartments to ease housing shortages (affordable) in cities. That might help. But basically, this is the market returning to the mean.
How does that play out? Investors play a large role locally. Some are people trying to flip homes. And a few percent are private equity firms and then renting them out. People trying to flip homes will drop a lot now that prices are not shooting up. So people looking to move may have trouble finding buyers and won't be getting the return they'd expect. As for private equity, they only buy a few percent of available homes, but over time that locks away a number of homes and lowers availability. And as pointed out in The Atlantic, there's been a serious under supply for a while.
https://www.theatlantic.com/ideas/archive/2023/01/housing-crisis-hedge-funds-private-equity-scapegoat/672839/