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Barbara
Here’s why Barbara is so optimistic on pricing. Assuming a buyer puts down 20% for a home, every 1% change in the buyer’s mortgage rate, changes the buyer’s purchasing power by 10%. That’s a huge swing for a lot of potential buyers. Given the purchasing power change and based on Barbara’s input, this should be a 10% increase in housing prices. I don’t agree with a one for one correlation though. Here’s why.
My Response
My response is affordability and pent up sellers. Let’s start with affordability. Affordability has been very poor for a very long time Housing Affordability Index. The affordability calculation is a combination of mortgage rates and housing prices. I think we’ve experienced sustained poor affordability because we’ve had an odd combination of relatively high interest rates and low inventory.
What Barbara doesn’t mention is that if rates do come down, we might unlock pent up sellers. The combination of lower rates contributing to more inventory could result in an increase in housing prices that doesn’t directly correlate with interest rate changes. It also may not directly correlate because there is such a small portion of the population currently that can afford the housing as it stands. We do not have the same loose lending that created the recession.
The Future
Lower rates ought to bring more sellers to the market as well as increase the affordability for buyers. I don’t know what the exact math is as far as would a 1% change in mortgage rates reflect a 5% increase in pricing because of the increased buyer pool? I’m not sure. What I do know is that if buyers can’t afford homes, properties won’t sell. Affordability would likely need to improve with more inventory. This would combat the one for one correlation between rates and prices. However, I think the important correlation now is affordability and inventory. I will see what I can do about finding some information on both affordability and inventory. Stay tuned!!
