We should all be familiar with the aphorism, “as real estate goes so goes the economy.” Anyone ignoring that economic axiom was completely blindsided by the Great Recession of 2008. Well, the collapse of the Everything Bubble most certainly includes the real estate market…and this time around will definitely not be different.
The plain and simple fact is that home ownership is getting further out of reach for the average consumer as mortgage rates rise. This is especially true for the first-time home buyer. The 30-year fixed rate mortgage is now the highest level since January 2014, 4.64%
With mortgage rates now more than half a percentage higher than at the start of the year, homebuyers are already getting priced out of an overvalued real estate market. This means that just by waiting a couple of months to buy a home, someone buying the typical U.S. home would be paying an extra $564 per year on their mortgage. Over the lifespan of a 30-year mortgage, that adds up to nearly $17,000, according to Zillow.
The rise in mortgage rates has caused purchase applications to fall to a level that is now just 1% above the year-ago period. The current trajectory clearly shows the YOY change should soon be negative, and as housing goes into recession the economy is sure to follow. In fact, Year-on-year, Existing Home Sales were down 4.8%, the largest decline since August 2014. Prices also dropped considerably in January; the median selling price fell by 2.4%.
Sales of New U.S. homes fell in January for the second straight month. The Commerce Department says sales came in at a seasonally adjusted annual rate of 593,000 units, which was the lowest since August and down 7.8%t from a revised 643,000 in December.
And the Pending Home Sales Index in January fell 4.7%, to 104.6. This was the lowest level for that Index in nearly 3.5 years. According to Bloomberg, this points to a third straight decline for final sales of existing homes, which already fell very sharply in both January and December.