Mortgage rates probably have to top 5% to tip housing into a recession-leading downturn
Mortgage rates probably have to top 5% to tip housing into a recession-leading downturn
I have run the graph comparing mortgage rates to housing permits many times. In the graph below, I’m using a slightly different housing metric — private residential fixed investment as a share of GDP, both nominal (blue) and real (green), current through last Friday’s report on Q2 GDP. Here’s the long term view:
We can see the leading relationship over the large majority of time frames in the last 50 years, with a few notable exceptions: the late 1960s and 1970s *huge* demographic tailwind of Baby Boomers reaching home-buying age, the 2000s housing bubble and bust, and 2014 (mainly due to the Millennial generation tailwind).
Here’s a close-up of this same graph beginning in 2015:
The increase in mortgage rates since late 2016 (blue in the graph bleow) has had a larger effect on private residential investment than the 2013-14 episode, probably because house prices are higher in real terms, as shown in the below comparison with wages (red):
House prices were near their 2012 housing bust bottom the first time mortgage rates went up. Now they are about 20% higher in real terms.
Finally, here is a more granular view of Treasury and mortgage interest rates over the past 18 months:
The decline in mortgage rates back below 4% in the middle of last year is probably what sparked the big increase in housing permits, starts, and sales last autumn and winter.
But because mortgage interest rates have actually increased a little bit over the last six months, I’m not expecting a similar rebound in housing this autumn.
At the same time, I can’t see much of a significant outright *decline* in YoY housing sale metrics — on the order of what we saw in 1999 before the 2001 recession — unless mortgage rates increase, at a minimum, to over 5%, and probably to 5.25%. We’ll see.
There wasn’t any decline in 1999-00 either. This will not be a housing lead recession, but one driven by corporate/consumer retrenching as debt markets contract. This cycle was always due to tend in 2019 and end it will. The neoliberal scam dissolving the UK is like putting the bat to the head when the CDS blow up next spring.
Corporate tranches have collapsed and there is no where to run.
Bert:
Are you going to stay Bert and not use other names? Let me know and I will quit tossing you into spam. Your choice. Answer me please.
“Mortgage rates probably have to top 5% to tip housing into a recession-leading downturn”
Yikes!
The Hill (9 Oct 2018) reports that
“The average fixed interest rate on 30-year mortgage has risen to 5 percent for the first time in eight years, according to Mortgage News Daily“