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.
Related:
- “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:
