Over the weekend, Mark Hanson came out with his updated views on housing. Obviously, he talks about “housing” as if it is one monolith, yet there is always nuance depending on the market. Nevertheless, I think his overall bearish tone holds merit.
His basic view is that the recent spike in rates is like other moments over the past half dozen years when leverage and stimulus were withdrawn – when high leverage programs disappeared in 2007/2008 and when the Homebuyer Tax Credit wound down in 2010. In the aftermath, there was a crash and a double dip, respectively. Currently, the surge in rates has immediately reduced “purchasing power” by 15% to 20%. The manner in which those low rates allowed housing to become a speculative market again has been ignored by those (the majority) that want to believe in a durable recovery. When you couple those rates with government and big banks trying to suppress supply, through the avoidance of foreclosures, one can imagine why it will take people by surprise again when/if housing stumbles.
His takeaway is that we are likely to see the convergence of “panic sellers” due to higher rates, fewer organic buyers because of lower affordability, and the all-cash PE element continuing to back out of the market.
