With Mortgage Rates at Their Highest Since 2009, The COVID Home Sales Boom is Over

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With a massive swing in mortgage rates, the 30-year-fixed-rate mortgage is coming in at 5.27%. Now, meeting the benchmark set back in August 2009, this is some seriously uncharted territory for the U.S. Just to give some context to how long ago that was, President Obama had just taken office, Instagram did not exist, Sarah Palin had just stepped down as Governor in Alaska, and in that same month, reporters jailed in North Korea were freed after former President Clinton met with Kim Jong-il.

So, with that kind of change in the world and in the U.S. since then, it’s not surprising to see America needing to revert to old tactics to stabilize the economy. When the President refuses to take responsibility for his poor decision-making and the American people have locally elected representatives who don’t advocate for what is best, these are the kind of things that can happen.

Odeta Kushi, deputy chief economist at title insurer First American has provided an analysis of the situation, and it’s not looking so good. “While some additional Fed tightening is already baked into today’s average mortgage rates, ongoing inflationary pressure remains likely to push mortgage rates even higher in the months to come… Existing homeowners are rate locked-in when their existing mortgage rate is below the prevailing market mortgage rate because there is a financial disincentive to sell their homes and buy a new home at a higher mortgage rate.”

However, there is a small trip in Kushi’s logic here. For people in places like NYC and NJ, they can sell their homes and buy a house in FL for all cash, or nearly. By being competitive with a full or almost all-cash offer, the people taking the mortgages are getting jammed into paying for an overpriced house and, then, having an overinflated mortgage on top of that. It’s not these other buyers that are always their biggest competition, either.

Companies like Zillow are buying up homes with cash offers and either sitting on them for months or immediately flipping the house, depending on the market. This is putting buyers at a price point that is even more inflated than it would be on its own. Market swings and adjustments like this aren’t good for the lenders, buyers, or sellers. Everyone at this point is losing somewhere.

There is one good thing that comes from everyone losing now – it means the balance point between bidding wars and contingencies should be reached soon. While the buyer’s market of years ago is not likely to return, this balance should give the average family a slightly better opportunity to get into homeownership compared to the post-pandemic years. Prices are still inflated due to a lack of options on the market, but this could also change as cash buyers and companies like Zillow may decide to cash out and cut losses instead of investing in fixing up the properties for little to no return on their investment.

Mizuho Securities U.S. economist Alex Pelle and chief U.S. economist Steven Ricchiuto penned a research note about things changing. “The pandemic boom in home sales is over, and activity is back at pre-pandemic levels.”

While their opinion is based upon research, these two have proven time and again to not only understand the economy but also the marketplace. If they are saying it is over, and the interest rates are coming up to stabilize the market, then we most likely are getting back into calmer waters. Hopefully, Biden and his cohorts don’t have anything else planned that could sink us now.