Think of an octopus – the head of the octopus is the housing market and the tentacles are all of the industries dependent on the housing market. Too much of a stretch? You get the idea.
Anyone who has ever purchased a home goes into it knowing that there will be a lot of out-of-pocket expenses, during the first year at least. New appliances, decorating, paint, furniture, lawn maintenance and a full litany of other homeownership necessities are just a few of the expenses homeowners can expect. Some of these projects are done by the new owners but many are performed by professionals who may see the demand for their services eroding if home sales slow down. Not to mention the effect slower home sales are having on the mortgage industry. Lenders and their employees, many of whom work on commission, are having their own personal recession.
Higher interest rates affect virtually every corner of the economy, but it affects the housing market the most. The higher the rates, the higher homebuyers’ monthly payments are, adding hundreds of dollars every month. This is exactly what our over-inflated economy doesn’t need right now. What it also doesn’t need are homeowners with low mortgage rates making the decision to stay in their homes with their ultra-low mortgage interest rates instead of moving up or out and taking on a loan rate double what they are currently carrying.
The higher the rates go, the less inventory there is or will be on the market. You don’t have to be a Harvard-educated economist to recognize that the supply and demand law is alive and well in the United States housing market. Some economists are calling this the golden handcuffs, tying homeowners to their low mortgages and just sitting on their property even if they want to move. A lot of homeowners are waiting for rates to go down before making their move, but is that really in the foreseeable future? Certainly, some people will still need to move because of personal life events, but those who have the option to not move probably won’t.
Because rates haven’t climbed this rapidly in decades, it’s almost impossible to predict how much the increase in mortgage rates could reduce home listings. Mortgage rates rose for five consecutive weeks in September, reaching the highest level since the financial crisis. Per Lawrence Yun, The National Association of Realtor’s chief economist, “I really don’t see inventory rising.” That’s a really scary open-ended statement. Does he mean the inventory will never improve?
Back to the law of supply and demand, the lack of inventory is one of the major reasons home prices have remained near record highs. Sales are declining, inventory is being suppressed and interest rates going up make for the perfect storm for selling prices to also keep going up.
As far as Florida is concerned, here’s one little tidbit that the Census Bureau reported in 2019, “Florida had the most domestic in movers, with 566,476 people moving from another state within the past year.” That was almost three years ago. I would love to know that number now but, based on the fact that over 321,000 people moved to Florida from the beginning of this year, it will likely be enormous. This could explain why you can’t get a doctor’s appointment lately.
The poor octopus has been called a sea monster but they’re not to blame, especially when the economists don’t really know anything either. The housing market is also a monster in many ways and how the housing market goes, so goes the economy. Buckle up, things aren’t changing anytime soon.
