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Tag: Manatee County mortgage rates

Castles in the Sand

Is the Earth moving under homeownership?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

As I’m reading that mortgage rates have topped 7% for the first time in 20 years, I can’t help wondering how all the events of the past two years will affect homeownership. As the affordability of purchasing a home deteriorates, will it take homeownership along with it?

I recently became aware of a book called “Crabgrass Frontier: The Suburbanization of the United States,” written by historian and Columbia University professor Kenneth Jackson in 1985. The book focuses on the history of single-family homeownership in the United States and goes all the way back prior to the Civil War. However, my interest and probably yours was what happened to American homeownership after World War II.

Although the book outlines the history of how the suburbs developed, it also explains the psychology of why people want to own their own home and the piece of ground under it. It’s all about the “American Dream” and how for generations, owning a home represented the fulfillment of that dream and the success that it symbolized. Immigrants who came through Ellis Island at the beginning of the 1900s couldn’t believe their children could actually own their own homes and appreciated how important that was to their lives.

The economics of owning a home for most would-be homeowners was less important than the desire to own a home, regardless of whether the future math made sense. Find the home you want in the area you want and find a way to get it without really considering its future worth. Fortunately, the future worth of real estate has consistently risen since the early 1950s when the suburbs outside of major cities grew and grew and grew.

All we have to do is look to the last couple of years when home values in the United States have risen 36% since 2020, which is twice as large as any other two-year increase on record. Even the real estate crash of 2007 hasn’t changed anyone’s minds about the value of homeownership. All the value that was lost has returned and most people and economists feel that what happened then was just a blip on the real estate radar, not a trend. There has consistently been a 60% homeownership rate since the early 1960s.

The COVID-19 epidemic has certainly changed where people live almost as much as the advent of affordable automobiles and highways did. It gave citizens the ability to live far from their job’s home offices and “commute” via their laptops, pushing up the value of homes in areas of the country no one ever considered moving to until retirement, like Florida. This has unfortunately widened the gap between the wealthy white-collar professionals and everyone else. That combined with the rise of inflation and mortgage rates has locked a lot of middle-class people out of the market.

Nevertheless, history predicts that what we’re living through now will not be long-term and homes will continue to appreciate. Eventually, new buyers will find a way into the market. Florida has been one of the major beneficiaries of this unusual real estate trend and, although our market is going through a slight correction, don’t bet on it collapsing.

Since the Federal Reserve just passed another rate hike at a recent meeting, we can anticipate mortgage rates to continue going up. As the Earth keeps moving under the real estate market, the average buyer just doesn’t know what to do, so many are doing nothing. It’s a sad state of affairs for the country, but hopefully one that will not stick around for long.

Castles in the Sand

Higher mortgage rates affect everything

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

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.