Dramatic change in mortgage rates contributes to America the Static

As loyal readers are aware, when it comes to homeownership I am a hater. The culture of homeownership is a huge drag on the U.S. economy, in my view, for the following reasons:

  • homeowners spend a lot of time working as amateur property managers, e.g., arranging maintenance or actually performing maintenance, that is much more efficiently done 100-600 units at a time
  • the high transaction costs, e.g., 5 percent real estate commission, discourage people from moving in response to the availability of better job opportunities

(This is not to say that I hate the single-family home as a living space. But I would think we’d be way more productive as a society if our single-family homes were owned commercially and managed professionally or, at the very least, owned in a condo-style arrangement where we didn’t have to touch anything beyond the interior.)

The “high transaction costs” in the second bullet point above are now vastly higher due to 2022 having become the Year of Mortgage Rate Drama. Someone who locked in a 3% rate, either via an initial purchase or a refinance, is sitting on an annuity that ends the minute he/she/ze/they decides to sell the house and move closer to where the better jobs are, potentially eliminating all of the economic benefit of switching jobs.

“After Years of Low Mortgage Rates, Home Sellers Are Scarce” (Wall Street Journal, 9/22/2022):

Housing inventory has risen from record lows earlier this year as more homes sit on the market longer. But the number of newly listed homes in the four weeks ended Sept. 11 fell 19% year-over-year, according to real-estate brokerage Redfin Corp. That is an indication that sellers who don’t need to sell are staying on the sidelines, economists say.

Larry and Corina Lewis of Tarrytown, N.Y., have two children and expect to need a bigger home in the next few years. But their current 30-year mortgage rate is 2.75%.

“The thought of giving this up in order to pay double in interest, that’s a nauseating thought for me,” Mr. Lewis said. Even if the average mortgage rate falls from its current level, he said, “I still don’t see it ever getting quite that low.”

The lack of housing inventory is one of the major reasons home prices have remained near record highs, despite seven straight months of declining sales as interest rates have roughly doubled since the start of the year.

Economists say it is difficult to predict how much the increase in mortgage rates could reduce home listings, because rates haven’t climbed this rapidly in decades.


  • “More Residents Looking to Leave San Francisco Than Any Other Major U.S. City, Report Finds” (Mansion Global (sister publication to WSJ), 9/20/2022): Despite life returning in force to big cities across the U.S., residents are still looking to leave them, and in even greater numbers than they were last year … In July and August, residents of San Francisco were the biggest flight risk. All told, San Francisco had a net outflow of 40,432 over the two summer months, a measure of how many more Redfin users looked to leave the city rather than move to it. Next on the list was Los Angeles with a net outflow of 34,832, followed by New York at 26,786. Washington, D.C., and Boston rounded out the top five. [Other than extended periods of public school closure, what do these cities have in common?] Miami was the most popular migration destination, “continuing a year-plus streak of the South Florida metro taking the number-one spot,” the report said.

Speaking of South Florida, here’s a fan of relocation to Jupiter. Mindy the Crippler’s priorities for a neighborhood are squirrels, rabbits, squirrels, rabbits, and, more importantly, squirrels:

14 thoughts on “Dramatic change in mortgage rates contributes to America the Static

  1. Totally agree on the time wasted as an amateur property manager. On the other hand, the idea of being subject to every increasing rents due to money printing in Washington isn’t appealing either.

    On that topic, I never could figure out how banks can afford to loan money in the US for 30 years at a fixed rate. Don’t they get killed when interest rates increase? Borrowing short (from depositors) and lending long (to homeowners) should lead to quick bankruptcy. But somehow it doesn’t. Magic.

    • > I never could figure out how banks can afford to loan money in the US for 30 years at a fixed rate.

      Bankers get paid a commission on the loans they originate, so they are incentivized to make loans today without worrying about the banks shareholders 30 years from now.

    • > Borrowing short (from depositors) and lending long

      That’s not how banking works, in fact it’s the opposite. Money for new loans isn’t borrowed, it’s created with a few keystrokes. New loans create new deposits, not the other way around. Even notorious economist Paul Krugman got it wrong (believing loans come from deposits) so the Bank of England made a video to explain it to him:

  2. @philg, why do you have to be amateur property manager if you do not want to? You sure can hire a consultant to do it for you per diem basis. What happen to Manhattan GGF (Girl/Guy Friday) from 1990th?
    Fore less fortunate (as in money fortune) member of laptop class as myself I personally find home improvement work refreshing. It lets myself to keep up with real world skills, it is liberating from everyday monkey business scheduling time working for myself despite current “urgent” “firefighting” task of the moment in virtual world feels like I still belong to myself. And worst comes to worst – home improvements can wait, I and my family still have roof over our heads in any case.

    • +1 here. It is surprising how many software engineers find it worth their while to fix cars, install doors or paint ceilings in their free time 😉 And some even go further and have AC install business, pizzeria etc. as desired alternative to the daily grind.

    • LOL. My take on house maintenance tasks is “if you wnat something done, do it yourself” (nod to Luc Besson).

      It is often faster to actually do the work than to find a reliable service provider who can do it properly. Most are doing absolute minimum, cut the corners, and are incapable of basic engineering creativity.

  3. Houses have become nothing but investments nowadays. Rent where you live, own what you rent is the slogan of millennials. No-one lives in houses. They just live in apartments & manage their houses.

  4. Hmm…yeah I’m one of those amateur house techs, (just refinished the porch) and it’s more efficient to have the pros come out and do it. Assuming, of course, you can get them to come out. (I just spent half a year looking at a demolished driveway until I could get another guy to come out and pour and stamp some concrete.)
    But…you mean economies of scale, like at Pruitt-Igoe?

    The best RE deal I ever took down was moving out of the house we owned, renting it out at some nominal positive cash flow (cash flow is always positive — until you need a new roof). We rented elsewhere for a bit until that became intolerable. (This was during the Arab Spring; we nicknamed our landlord “Hosni”.)
    Went to an open house at a duplex in a desirable downtown (women not afraid to walk home from restaurant row unescorted.) Stepped outside, took a blank p&s form from the real estate lady and wrote up an offer on the hood of the car. Beat the next guy by 20 minutes.

    One of the real estate ladies happened to be my wife. Rolled her split of the commission into the loan — 105% of the purchase price courtesy of the VA — thank you Uncle Sam. No, no don’t thank me for my service — I still don’t get what that’s all about — according to Sen/Secretary Kerry it was all about baby killing and torching villes, so…you’re welcome, I guess..

    Lived in the duplex for a while letting the tenant pay the principal, interest, taxes and (her) utilities. My RE tax went up 25% year over year, last year! WTaF?
    But all in all, I’m basically being paid to live there. Of course I am on call for the leaky sink/toilet/shower etc….and, “Eeek, there’s a mouse!”

    The amateur investor is forced into RE because it’s the one inflation-hedged (and leveraged, see above) vehicle accessible to the “non-accredited” investor.

    Supposedly hedge funds like Blackrock are outbidding local investors and running rental property with ‘professional’ management. I wonder if they’ve ever actually dealt with such. I mean, you can definitely farm out all the work if you are willing to give up your margin which is already pretty thin. “We lose money every month but make it up when we sell the property.” Hmm…yeah.

  5. The trend is toward institutional ownership of real estate since from a financial point of view it is a poor idea for an individual to put a substantial portion of his net worth into an undiversified investment like a single family home in a single community. Individua; ownership of property is typically favored in countries with undeveloped capital markets like India, China and much of the developing world since property is one of the few places one can invest savings. That is not an issue in the US since the US has the world’s best developed capital markets. If one thinks property is a good investment (historically it is a mediocre investment returning somewhere between stocks and bonds with poor liquidity and high transaction costs) then buy REITs. If one wants leverage buy REITs using margin debt. Regarding the comment about RE being “the one inflation hedged investment available to the ‘non-accredited” investor, that is nonsense. There are lots of listed stocks, say oil, property, metals, etc., that will give exposure to inflation hedged investments and anyone with a brokerage account can buy. Also I bonds and TIPS. Dubious that any of these investments will be particularly good over the long haul.

  6. I’m surprised that lizards are not on Mindy’s list. They are No 1 for my brother’s goldens’ in Central Florida.

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