Mortgage Rates & The Housing Market

What are the predictions from the armchair economists of IDO? Where is this housing market headed?

I saw that the average 30 year fixed rate mortgage is now up to 5.1%, with the Fed likely announcing another rate hike yet today. We sold our home in November and pocketed about $150k in pure profit after I bought it in 2014. I thought we timed things perfectly, but now it seems the prices are still climbing.

There is still such a huge shortage of housing that I don’t think the market is going to collapse anytime soon, but there has to be a point where price increases and increasing valuations stop – right? 5-6% interest rates adds a substantial amount of $$$ to monthly mortgages AND the lifetime of the loan.

We are living in interesting times, and the housing market has been quite unique the last ~3 years. I know that demand has never been anywhere near this level in my lifetime for sure.

Im far from an expert, but I am seeing houses sit on the market far longer than a year or two ago.
Its getting pretty tough and I have a feeling that the very wealthy were driving up the prices by hoarding houses in a volatile market.

We bought at the perfect time I think, September of 2020. Locked in at 3%, and homes in our neighborhood going for 80-140k more than we paid. The fed is going to continue to move rates up slowly until inflation levels off or the market cools off significantly. Home prices will level off once demand does, that’s a pretty straight relationship between supply/demand imo.

I looked for a house for about a year in the west metro. I looked at about 25 houses since April 2021 and offered on 6 of them. Last month, an offer was finally accepted. 10 days ago I sold my current house. Its only a 10 year old house and I have been the only person to live here. I take maticulous care of my property inside and out.
We had 15 showings in 3 days and 3 offers. Two were above asking price and one was right at asking price.
My new interest rate is 5.25%. I locked into that shortly after we signed the purchase agreement. I watched the interest rate creep up since December, but there was really nothing I could do. My loan officer thinks that it will be about 24-36 months before it starts to fall again. I do intend to re-finance if/when they do. 5.25% is pretty good based on historical standards, but its obviously higher than it has been in recent years.

gim wrote:

5.25% is pretty good based on historical standards, but its obviously higher than it has been in recent years.

Someone at the bar a week ago was complaining about 5% interest rate and the curmudgeon retired Loan Officer went off on him. LOL My first mortgage was 7.125% which was considered low at the time. Really anything under 7 is pretty dang good, but the last several years has been ridiculously nice for those getting into homes or refinancing/cashing out.

Here is a trick no one really talks about. Double the principle payment on your mortgage statement. The first 12 years of your mortgage is when the lender makes most of there money on your loan. You pay little principle and tons of interest. So paying double on the principle on a new loan is easy for most, it will go up a couple dollars every month. Your 30 year loan will be paid off in about 15 years. 15 years of 5.25% interest will save you $200k on a $500 mortgage. That’s a new F-150 with a new 21′ Ranger and some beer money. Just saying……

Paying 1 extra payment a year I believe cuts the mortgage down 7 years as well.

In 1980 interest rates were 18%. The country survived but people had to learn how to live within their means.

CaptainMusky wrote:

Im far from an expert, but I am seeing houses sit on the market far longer than a year or two ago.
Its getting pretty tough and I have a feeling that the very wealthy were driving up the prices by hoarding houses in a volatile market.

Not sure where you live CaptainMusky. My buddy is a realtor in the Hudson area. The housing inventory here is incredibly low. He complains every time every time I see him. House hit market on Friday. 15 offers by Monday. No contingencies and 40K over asking price on a 300K house. He offered 25K over asking price with no contingency/cash offer and didn’t get it. There is one house in our neighborhood that has been for sale for a few months. I assume they have it listed crazy high. My parents have been kicking tires on some more senior friendly houses and the places they look at have sold immediately.

bzzsaw wrote:

Not sure where you live CaptainMusky. My buddy is a realtor in the Hudson area. The housing inventory here is incredibly low. He complains every time every time I see him. House hit market on Friday. 15 offers by Monday. No contingencies and 40K over asking price on a 300K house. He offered 25K over asking price with no contingency/cash offer and didn’t get it. There is one house in our neighborhood that has been for sale for a few months. I assume they have it listed crazy high. My parents have been kicking tires on some more senior friendly houses and the places they look at have sold immediately.

Im in the St Cloud area. Ive been seeing houses sit for weeks if not months. There is a nice house on the river in Sartell that has been for sale for a couple months now. Great lot and wouldnt be a super high dollar house either.

I doubt demand will slow down anytime soon. Apartment complex’s and other rentals were selling for record prices. Issue being now they will have bigger loans behind them needing higher rents to keep margins the same. Since rents will be higher people will still be motivated to spend stupid money on a house as paying that higher amount towards a mortgage vs rent is seen as better.

I’m generally more of the “you make your own luck” type of guy, but I do genuinely feel bad for people who are looking for homes…especially starter homes. There are millions of people in their late 20’s and 30’s who have held good jobs, are fiscally responsible, but will literally not have a chance to get into a home for the foreseeable future without a ton of luck.

I’ve got a younger coworker who is 30, has no loans other than his truck, is using his degree and even picks up a side job…and he and his fiancé are going into their second year of the house search. They’d love to find something in the $225-300K range. Two weeks ago they put down an offer on a home the same day it listed for $17,500 over list price and it sold to someone else the next day. It sounds now like their latest plan is to buy a 5 acre parcel on the edge of town and pay it off before building on it. They hate renting, but the options in rural areas are just few and far between. 10-15 years ago they could’ve had their pick of beautiful homes in the area. They haven’t done anything “wrong”, other than the market timing hasn’t been on their side.

We locked in at 2.8 percent interest last year. We make double payments every month and the house will be paid off in less then 8 years. Lots of interest killed off by making the double payments. And it kills the debt off at a very fast rate. It also helped having such a large down payment.

Don’t discount the fact some realtors just buy them to flip as soon as they hit. There are groups that work with these guys & since you never meet a buyer or seller at closing anymore you never know who buy until somebody moves in.

buckybadger wrote:

I’m generally more of the “you make your own luck” type of guy, but I do genuinely feel bad for people who are looking for homes…especially starter homes. There are millions of people in their late 20’s and 30’s who have held good jobs, are fiscally responsible, but will literally not have a chance to get into a home for the foreseeable future without a ton of luck.

Agreed, the starter home market is ridiculous and these first time homebuyers are competing against their own 401(k) basically with BlackRock, BlackStone and other investment firms entering the housing (rental) market. Not sure the correct answer, but it sure isn’t right.

buckybadger wrote:

It sounds now like their latest plan is to buy a 5 acre parcel on the edge of town and pay it off before building on it.

This would be a great idea. Building materials are ridiculous right now, but may drop by the time they are ready to build.

buckybadger wrote:

They’d love to find something in the $225-300K range.

Even 5-7 years ago it was slim pickings for a home in this range unless you wanted a fixer upper or willing to out to the sticks. I am sure it is worse today. I don’t predict prices going down. I think they will level off and stay where they are. What supplier is going back to $15 for a sheet of ply wood when they have been getting $50 for the last 2 year.

CaptainMusky wrote:

<div class=”d4p-bbt-quote-title”>bzzsaw wrote:</div>
Not sure where you live CaptainMusky. My buddy is a realtor in the Hudson area. The housing inventory here is incredibly low. He complains every time every time I see him. House hit market on Friday. 15 offers by Monday. No contingencies and 40K over asking price on a 300K house. He offered 25K over asking price with no contingency/cash offer and didn’t get it. There is one house in our neighborhood that has been for sale for a few months. I assume they have it listed crazy high. My parents have been kicking tires on some more senior friendly houses and the places they look at have sold immediately.

Im in the St Cloud area. Ive been seeing houses sit for weeks if not months. There is a nice house on the river in Sartell that has been for sale for a couple months now. Great lot and wouldnt be a super high dollar house either.

Well there’s the issue, st.cloud.

Rising rates will curb the ‘rates’ of increase in home values but you will not see a drop in overall values. Underwriting is very different from back in 2007 times, borrowers are more credit worthy. Not that you won’t see defaults, but nothing like last time. Biggest factor simply supply and demand. There aren’t enough houses being built. Period. The jobs market is still hot, so drastic unemploymentis not an issue. People are definitely stretching themselves credit-wise, but there are so many modification/hardship plans people will manage. And to the people talking about 7%+ interest rates years ago I WOULD LOVE to have higher rates with home prices at only a few multiples of a standard wage. Paying 10% on a $150k house makes sense if a guy makes $50k a year and rewards savers. It also keeps corporations from buying up real estate as an investment since the borrowing rates are so low (causing supply issues). Now it’s a guy making $70k (remember wage growth has not been great to the common man) trying to buy a $450k house. Low interest rates were a burden and a drug, and without them young first time homebuyers are truly screwed. I only hope to have some real estate to pass on to my kids when $100k is a living wage and a $450k home is now $800k

Deuces wrote:

Well there’s the issue, st.cloud.

There are other places to live than the Twin Shitties.

And to the guys with under 3% interest rates trying to pay off your mortgage as fast as you can WHAT THE HELL ARE YOU DOING! At borrowing rates that low you grab as much as you can with both hands especially with inflation the way it is. We call that free money even when inflation is at normal rates.

CaptainMusky wrote:

Paying 1 extra payment a year I believe cuts the mortgage down 7 years as well.

i refinanced for a 15 yr at 2.25%. i pay bi-weekly which shaves off 19 months. i then pay an extra $250 a month which according to the calculations saves me another 3 years for a total of around 5. So my house will be paid off in 10 years. im pretty bad at math so maybe your number works on a 30 year loan but it doesnt seem right.

buckybadger wrote:

I’m generally more of the “you make your own luck” type of guy, but I do genuinely feel bad for people who are looking for homes…especially starter homes. There are millions of people in their late 20’s and 30’s who have held good jobs, are fiscally responsible, but will literally not have a chance to get into a home for the foreseeable future without a ton of luck.

I’ve got a younger coworker who is 30, has no loans other than his truck, is using his degree and even picks up a side job…and he and his fiancé are going into their second year of the house search. They’d love to find something in the $225-300K range. Two weeks ago they put down an offer on a home the same day it listed for $17,500 over list price and it sold to someone else the next day. It sounds now like their latest plan is to buy a 5 acre parcel on the edge of town and pay it off before building on it. They hate renting, but the options in rural areas are just few and far between. 10-15 years ago they could’ve had their pick of beautiful homes in the area. They haven’t done anything “wrong”, other than the market timing hasn’t been on their side.

couldn’t agree more with everything you said

BigWerm wrote:

Agreed, the starter home market is ridiculous and these first time homebuyers are competing against their own 401(k) basically with BlackRock, BlackStone and other investment firms entering the housing (rental) market. Not sure the correct answer, but it sure isn’t right.

I thought i remembered hearing that there is a law in place that if a house receives bids from an individual and a firm the individual must have a chance to buy first or something? im vaguely remembering this so im sure im way off here.

I dont know what the answer is either but if it is the case that there are a bunch of firms buying up houses only to juice the prices thereby squeezing out the little guy trying to buy a starter home there ought to be something we can do to prevent this

crappie55369 wrote:

i refinanced for a 15 yr at 2.25%. i pay bi-weekly which shaves off 19 months. i then pay an extra $250 a month which according to the calculations saves me another 3 years for a total of around 5. So my house will be paid off in 10 years. im pretty bad at math so maybe your number works on a 30 year loan but it doesnt seem right.

Yes, I am talking about a 30 year loan. Should have clarified.

FinickyFish wrote:

And to the guys with under 3% interest rates trying to pay off your mortgage as fast as you can WHAT THE HELL ARE YOU DOING! At borrowing rates that low you grab as much as you can with both hands especially with inflation the way it is. We call that free money even when inflation is at normal rates.

Its the highest interest loan i have and my wife and i are already putting 12% into 401k along with investing through etrade. i suppose i could throw more at the market and see what sticks but investing is about balance and to some degree comfort level. Having a paid off house has value to me that cant be measured in a profit margin column

FinickyFish wrote:

And to the guys with under 3% interest rates trying to pay off your mortgage as fast as you can WHAT THE HELL ARE YOU DOING! At borrowing rates that low you grab as much as you can with both hands especially with inflation the way it is. We call that free money even when inflation is at normal rates.

Yeah there is a lot of truth to this. Doubling up on auto payments/credit cards may make more sense because your vehicle goes down in value while your house appreciates.

FinickyFish wrote:

Rising rates will curb the ‘rates’ of increase in home values but you will not see a drop in overall values. Underwriting is very different from back in 2007 times, borrowers are more credit worthy. Not that you won’t see defaults, but nothing like last time. Biggest factor simply supply and demand. There aren’t enough houses being built. Period. The jobs market is still hot, so drastic unemploymentis not an issue. People are definitely stretching themselves credit-wise, but there are so many modification/hardship plans people will manage. And to the people talking about 7%+ interest rates years ago I WOULD LOVE to have higher rates with home prices at only a few multiples of a standard wage. Paying 10% on a $150k house makes sense if a guy makes $50k a year and rewards savers. It also keeps corporations from buying up real estate as an investment since the borrowing rates are so low (causing supply issues). Now it’s a guy making $70k (remember wage growth has not been great to the common man) trying to buy a $450k house. Low interest rates were a burden and a drug, and without them young first time homebuyers are truly screwed. I only hope to have some real estate to pass on to my kids when $100k is a living wage and a $450k home is now $800k

^The corporation part is true, especially in more populated suburban areas. In more rural areas like I live, the low interest rates had people who are even moderately wealthy gobbling up homes like mad. I know of one contractor who locally owns 11 homes, all probably valued at 250-300k…all bought within the last 4 years. It’s hard to fault him as he works hard and was handed a successful business through inheritance, but that was probably 8-10 young families who missed out. This multiplied out many times over makes it hard for people to get skin in the game of just owning a family home.

In hindsight, we probably made a fiscal mistake selling our home for a $150k profit and rolling that towards a new build and land last year. With the rate at ~3% on it, we should’ve made minimum payments and just doubled down that extra cash we had and bought up something else 2-3 years ago. Sometimes peace of mind is worth more than extra $$$ though.

For those with a mortgage rate under 3%, making double payments probably isn’t the smartest play as was stated above. Even I-Bonds are giving you twice that in interest for the next 6 months.

crappie55369 wrote:

<div class=”d4p-bbt-quote-title”>FinickyFish wrote:</div>
And to the guys with under 3% interest rates trying to pay off your mortgage as fast as you can WHAT THE HELL ARE YOU DOING! At borrowing rates that low you grab as much as you can with both hands especially with inflation the way it is. We call that free money even when inflation is at normal rates.

Its the highest interest loan i have and my wife and i are already putting 12% into 401k along with investing through etrade. i suppose i could throw more at the market and see what sticks but investing is about balance and to some degree comfort level. Having a paid off house has value to me that cant be measured in a profit margin column

True there is peace of mind value for people paying off a house and the fact that it’s your highest interest rate is amazing (I want to meet your creditors haha). I know I saw you post on the I Bonds topic and it just seems it would make more sense for some of the people here to put that extra payment into (for example) I Bonds at least for the next six months (probably longer) and take a 9.5%ish risk free-ish return over 3%. But diversification is important as well so on and so forth yada yada yada….

I kinda think the best answer is…nobody knows. But, I believe rising interest rates will temper things noticeably. Combined with high material and labor costs, I think a lot of people will sit on the fence. Especially when it comes to home improvement projects. Additions, garages, etc. Home prices will likely come down simply due to lack of buying power the average person will have with higher interest rates. For those saying that lumber will never come down close to what was pre-pandemic, it actually did for a short time last fall. 1/2″ OSB was down to $13/sheet. It peaked a year ago over $50 and is now around $38. Last year lumber as a whole began dropping about this time due to the big wholesale buyers saying enough is enough. Word has it that the same thing will likely happen again.