A hot housing market is cooling down

NICK EICHER, HOST: Up next: The shifting housing market.

It was pretty remarkable that in the middle of pandemic-related shutdowns that hammered the economy, the housing market took off like a SpaceX rocket.

Homebuyers tried to outbid one another as the number of house hunters outpaced the number of house sellers. It now appears the white-hot housing market may be cooling off just a bit.

MARY REICHARD, HOST: What’s the state of the housing market right now, where is it heading, and what about mortgage rates?

Joining us is Dale Vermillion. He wrote the book titled Navigating the Mortgage Maze: The Simple Truth About Financing Your Home. Dale, good morning!

DALE VERMILLION, GUEST: Good morning, Mary. Great to be with you. Thank you so much for having me.

REICHARD: Well, it looks like things are cooling off now. Where does the market stand in terms of prices and availability?

VERMILLION: You know, we are seeing a turn. It’s interesting as the rate started to shift about November of 2021, and we led into 2022, the first quarter was pretty active. Second quarter, it seemed like everybody kind of held their breath to see what was gonna happen. We have seen rates literally double in a 92 day period in 2022. We have never seen that in U.S. history. They've been tracking rates since 1971. First time that's happened. We've had the single biggest interest rate increase this year that we've ever seen, with rates going up over 300 basis points—that's over 3 percent in a matter of about five months. So that's really record performance. And what that's done to the housing market now is we've seen several things. A lot of people have jumped out of the market, partially because they were frustrated because they couldn't get contracts because of the competition, partially because of the increase in interest rates, and partially because of the increased values in properties. But we are seeing a turn now in the last several weeks. We have seen a lot of shifts in the marketplace that actually benefit buyers today. We're seeing the market for the first time in a long time move from a sellers market to a buyers market. And that's because now we're starting to see listings drop a little bit. People are realizing that they can't get those same values they were just three months ago or two months ago. So that's starting to change and that's bringing affordability back into line. And we're seeing less people offering on property. So there's a better chance to get contracts today than there used to be. So all these things combined have really led to a better buyers market right now than we've seen in a long, long time.

REICHARD: As overheated as the housing market has been though, is there any danger of a repeat of 2008 when the housing market collapsed?

VERMILLION: We definitely don’t have happening today what happened in 2008. 2008 was really a product, Mary, more than anything else of poor quality loans. It was a Wall Street product problem. It really came back to credit quality that was the primary driver of that major catastrophe that we had with housing. What we are going to see and we're already seeing, you know, property values always lag after listing prices. So we've seen over 10 years of property values increase. That's the longest run that we've seen since World War Two. We are starting to see, because listing prices are being pulled back, you'll start seeing property values drop in markets around the country. But I think that's going to be regionalised, not nationalized, like we saw in the 2008-2009-2010 markets. And the reason for that largely is due to work from home. Work from home is changing everything, Mary. It's interesting how today people can live pretty much anywhere they want to live in a lot of cases and work from where they're at. So for that reason, places that people want to be are going to continue to be high demand. That's going to keep prices up. It's always about supply and demand at the end of the day. But those markets where people don't generally want to get to, you're gonna start to see some drop in property value. So we will not see what we saw across the board in 2008 in 2022, but we will start to see property values drop in parts of the country.

REICHARD: Dale, where are mortgage rates right now and where are they likely heading as the Federal Reserve raises rates?

VERMILLION: Yep. So, one thing that’s really important for everybody listening to understand is that the Fed rate increases do not directly affect—believe it or not—mortgage rates. Now they do affect, you know, your rates in your savings and checking and money markets, and it affects car loans and personal loans and those kinds of things pretty directly. But when it comes to the mortgage arena, it's more based on a combination of inflation numbers. It's based on the bond market. Those are the things that really drive what interest rates do and although we did see a correlation between the increase of the Fed and the increase of the rates in the first half of this year, if you remember, just a couple weeks ago, we had the Fed raise the rates 75 basis points and interest rates dropped by almost a percent. So, you won't see a direct correlation anymore going forward like we have been seeing as they've been making the correction for inflation. So, as we start to see inflation numbers drop—we just saw a drop recently in the last week or so—we'll start to see mortgage rates move down. Today, they're sitting at about 5.3 percent on a 30 year fixed loan about 4.6% on a 15 year loan and adjustable rates are averaging right around 4.35. So, they're lower than they've been. They are going to probably hinge between the mid fours, mid fives, I would think, for the third quarter of 2022. Now, I have a lot of friends that are experts in this industry like I am that watch these numbers all the time. And in all the people that I've spoken to, what we really think is going to happen this year is rates gonna stay around that 4.5 to 5.5 percent range for the remainder probably of this year, maybe start to decline a little bit in the fourth quarter. And in 2023, we anticipate a little bit more drop and maybe see rates get in the low fours.

REICHARD: Dale Vermillion is the author of Navigating the Mortgage Maze: The Simple Truth About Financing Your Home. Thanks for your time today.

VERMILLION: Mary, always great to be with you. Thank you for having me.

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