Housing market slumps. Again

I keep wondering when the Fed moves are going to kick in and slow down the economy, as the high interest rates/nee: housing mortgages have traditionally done. It’s been months. Months and months, and even as housing sales drop, the economy somehow powers on.

What I’ve read for most for my investment life is that housing is the gigantic, mother of all bells, signaling the health of the overall economy. Because when people move, they need all sorts of new things: houses get spruced up, painted and repaired. Then new people move in and buy rugs and furniture and all sort of new doodads for decorating, and often lots of paint and painting crews to make the house just the way they like it.

So what to make of:

Housing Market Slumps as Mortgage Rates Top 7%

Sales of previously owned homes decreased 4.3% from the prior month

The average rate on the standard 30-year fixed mortgage jumped by nearly a quarter percentage point to 7.1%, according to a survey of lenders released Thursday by mortgage-finance giant [Freddie Mac]. That is the highest level since late 2023 and the largest weekly increase in nearly a year.

Existing home sales in March, meanwhile, posted their biggest monthly drop in more than a year, the National Association of Realtors said Thursday. The 4.3% decrease from February was the largest percentage decline on a monthly basis since November 2022, NAR said.


Amazingly, prices for home on the market actually went up, even though transactions are heading down. It is, according to traditional thinking “a seller’s market”, because the inventory is so low.

Huh. Just another story in the naked city. What to make of it all?

Can’t find the article at the moment, but apparently the problem is mortgage stickiness. Tons of people have super low interest rate mortgages and can’t afford (or don’t want to afford) to move. The delta between old mortgage rates and current mortgage rates has never been higher.

That means inventory is low, which drives up prices, which are already effectively extra high because of mortgage rates. This will end somehow, but probably not in a good way.


Prices are high because of low inventory for sale, not because of mortgage rates. Higher mortgage rates compounds affordability issues, however, but that just means people will have to buy less house than they want, not be unable to buy. With the low inventory, there is simply nothing to buy. It’s stunning how few properties are on the market right now in our area.

Eventually, rates will come down. Initially, that will increase buyers and put pressure on prices to move higher on the still tight inventory, and cause bidding wars all over again. Owners who have been holding onto their low rate mortgage will put houses on the market, increasing inventory for sale, but also increase buyers, unless of course they own more than one home or are looking to move to a retirement community. Selling a rental will become attractive. Eventually, properties for sale will catch up with demand and prices will equilibrate, but only after yet another spike in prices. The only thing that will bring down prices is excess inventory relative to buyers.

This is part of the reason why we pulled our property from the market when the deal fell through. We put it up for sale too soon.



There is significant anecdotal evidence that high mortgage rates keep people with low mortgage rates in their houses, and that makes for low inventory. Of course as people move they need a place too, but just a couple days ago I read of a glut of baby-boomers now living in oversized 3 and 4 bedroom houses, but are unable (or unwillling) to downsize to a smaller home which will cost as much or more for the same amenities.


Mathematically speaking the number of owners should be nearly constant, so how does this work? In the whirlpool of housing, the more willing people are to move up or move down, the more “inventory” is available, even though the number of owners is static. That’s not happening now because of high mortgage rates and overpriced housing. The market is locked up, with no apparent way to grease it back to normal.

I would think the opposite could also be true. Lower prices would encourage some to “get out while the gettin’s good”, and lower mortgage rates would unlock those who feel constrained by the higher monthly payments for the same or equivalent property.


And what catalyst do you see for lower prices given the low inventory?

My first mortgage was 9%. I don’t see todays rates as high. Sure, you could say housing costs more, but incomes are also much higher.

We tried downsizing. Didn’t take. Upsized to a 4 bedroom that included a separate apartment. We don’t need the room, but you don’t get great lots without large homes, and I have a bit of Scarlet O’Hara in me when it comes to land. Was able to give the apartment rent free to Youngest when he graduated college during Covid, making it problematic to get a professional job for the next 18 months. Now have an acquaintance dealing with medical debt and recovery moving in to the apartment to housesit while we go off traveling. He saves money, we get freedom with a trusted person watching our house. We hold on to an asset that gives us a crash pad when we need to be back in town for medical appointments, appreciating more than it costs to keep and maintain. Win Win.



Lower rates would unlock many of the people who are “stuck” because they have a very low rate and can’t/don’t want to take a high rate. That’s churn. That’s inventory suddenly available. However I doubt that will happen quickly thanks to the Fed’s fear of inflation and the persistence it has shown. Even when there’s a lot of inventory I wouldn’t expect prices to go down a lot , but they certainly will flatten, with bargains here and there.

Beat you. Mine was 13%. Actually I applied and locked 11.4%, but the HR department where I worked didn’t timely respond to income verification, and by the time I reapplied it was at 13+%. I always hated that guy.

I couldn’t do it. Watched my father move from a large 2 bedroom home to a 2 bedroom unit in a retirement home. OMG, just shoot me now.

The example family in the WSJ article is just so absurd I don’t even know where to start. They are not typical of anything, not even of boomers, and not even of moderately affluent boomers. They bought their house for $1.5 MILLION in 2002, and they own a home in Martha’s Vineyard, AND they rent a Boston apartment for weekend theater trips. No mortgage on any of their properties. These are WEALTHY people, not anywhere near average. And the kicker? Their daughter laments that she can’t afford a house in Martha’s Vineyard … of course you can’t, that’s a place for wealthy people like your parents!

Seems like the WSJ is completely out of touch with regular folk, if this is the main example they choose to highlight in this article.

Finally, blaming the boomers for all sorts of bad things is rapidly becoming a bad cliche. Especially considering that more than a third of boomers are already dead!


I see that as inventory neutral. Those putting properties on the market will likely also be looking for new ones to buy. The things that will add to inventory will be sales of rentals and vacation homes.

Yup. It’s one reason why we like our home with an apartment. We always viewed it as a place for an Elder Au Pair to live.

realizing that those don’t exist…yet…but we also don’t currently have a need for one

Here is a story about the mortgage lock up effect:


OK. I don’t see it that way. If not a single vacation home or rental came on the market, but everyone “stuck” because they have a 3% mortgage suddenly became “unstuck”, there would be a flood of inventory on the market. Sure, there would be the same number of buyers and sellers, but there would also be a ton of houses from which they could choose. More motion = more inventory.


This also unravels as the FED lowers rates.

I do not believe the FED will lower rates to 1950s levels, this time.

The bigger matter rental unit leases. New units are coming into the market this year. The story is there. Pressure will come off the market.

This is always true. Even if there are an equal number of buyers and sellers, a higher number of them will lead to higher inventory at any given time. It will also lead to more transactions, of course.

I always wonder about the ~3 million people that die each year. Even assuming that only 1/3 of them die with property, that’s still a million pieces of property hitting the market each year. Maybe many don’t hit the market and instead stay in the family?

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