The Average Monthly Mortgage Payment is 100% Higher than 18 Months Ago

Posted by Jacob Radke
Mortgage rates and existing home prices

It comes as no surprise to anyone that the housing market has been booming since the onset of the pandemic, just check your property taxes.

And I think the biggest question everyone has is, can it last? Or will home prices come down?

We’ve had a record wave of interest rate increases that should have a more substantial effect on the market than it has in reality, but that wasn’t the case. Keep in mind, though, things can change with that.

Structurally the housing market is no different than any other market. It moves on supply and demand, and higher interest rates could actually be a catalyst for growth rather than deterioration.

It probably also comes as no surprise to many of you that there is a shortage of homes in the United States.

Housing supply is constrained

Existing home inventory has had a steady declining trend since the GFC, and housing starts, new construction, has taken since the GFC to nearly recover. The kicker is there are obviously more people today than there were in the GFC. So what does that say? Demand for homes must be increasing, but it’s increasing faster than supply, which boosts prices.

John Burns recently put out this chart about US housing markets and their buyer and seller statistics. In 95% of markets buyers outnumbered sellers at the peak in early 2022 before the rate increases. In October that number had dropped to 48% of markets, but in 76% of markets there were still enough buyers to keep the market steady, except in some regions of the US.

John Burns buyers outnumber sellers

What could keep home prices high is the higher interest rates forcing sellers to stay in their homes (lowering supply) and still having buyers wanting to buy homes (increasing demand). There will most likely always be buyers for homes in any rate environment, sometimes more sometimes less, but likely always some. That essentially puts a floor on the housing market for sometime, until average mortgage rates start to move above the current rate.

The one thing the Fed can’t solve by raising interest rates is making builders build more. When the rates go up the opposite happens, they pull back, causing a deeper supply shortage and boosting the prices. In a vacuum this all makes sense, time will tell how this plays out in the real economy and market.

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