“Will higher interest rates kill the housing market?“
I’ve heard that question a lot this year. Especially from people who lived through the housing bubble leading up to the 2008 financial crash.
It’s easy to get déjà vu seeing how quickly home prices are rising today. After all, prices rose sharply before the housing market crashed in 2008. So why would it be different this time?
And if we are set for a crash, wouldn’t higher interest rates be a natural catalyst?
If rates make mortgages more expensive, won’t that hurt demand and cause home prices to sink?
We can definitely explore this topic in more detail — and we will… But the short answer is “no.”
At least we shouldn’t see home prices drop much. Because the supply / demand dynamics in today’s housing market are very different.
Before the financial crisis, spec homes were being built by aggressive developers and bought with NINJA loans. (The term “NINJA” was an acronym for “No Income, No Job or Assets.”)
To say that supply far outran demand would be an understatement.
Today, the housing market is driven by natural demand. Real buyers what real homes that they can raise a real family in.
That organic demand won’t go away just because interest rates rise. Especially not if wages continue to increase at their current level.
Yes, higher interest rates could ease the high level of demand and bring the housing market back into balance. But with so much organic demand, it’s highly unlikely we’ll have a full on bear market for homes.
Today’s links include record Bitcoin markets, more news on the global energy crisis, the US-China tech race and more!
The Housing Market from Here to There
- Zillow: Housing market creeping towards more balance.
- Annual growth in home values hit record high of 18.4%.
- Home values up in September for all 50 of the largest metro areas.
- For sale inventory up 0.4% from August.
- Annual rent growth was positive in all 50 large metro areas.
- WSJ: China home sales are falling sharply.
- Many developers showing year-over-year declines of 20% or 30%.
- The sales slowdown is partly a result of tighter government policy.
Cryptocurrencies Hit New Records
- CoinDesk: Record open interest in Bitcoin futures.
- Dollar value of open contracts hit $3.64 billion Friday, double for the month.
- Traders expect several futures-based ETFs may begin trading in the US.
- CoinShares: Digital assets under management hit highest level on record.
- Bitcoin saw the largest inflows.
- CoinDesk: Cryptocurrency total market cap hit all time high.
- Total market cap nears $2.5 trillion.
- Some worry about an overheated futures market with leveraged positions.
The “Everything Shortage” Continues
- Bloomberg: Unusual decline at US oil hub.
- Crude oil inventories at Cushing Oklahoma dropped by most in five years.
- Demand from Europe is attracting exports from U.S..
- Flows on pipelines from Midland Texas (Permian) to Cushing were muted last week.
- Reuters: Chip shortages, Hurricane Ida weigh on US Factory Output.
- Manufacturing production falls 0.7%, motor vehicle production down 7.2%.
- Labor and product shortages are still worsening.
- Global shortage of microchips is forcing automakers to cut production.
- Motor vehicle assembly dropped to 7.78mm rate, lowest since April 2020.
- WSJ: US companies buying large amounts of commercial property.
- Publicly traded companies own land and buildings valued at $1.64 trillion.
- Walmart owns more than $116 billion in land and buildings.
- US publicly traded companies hold $2.7 trillion in cash — up 90% from 2011.
- ESI: Confidence in overall US economy reaching historic low.
- Fatigue from pandemic, rising energy prices, stagflation and supply chain concerns.
- Confidence declined for finding new job, making major purchase, in housing market.
China Vs US – Who Wins the Tech Race?
- WaPo: Who is winning the U.S.-China tech race?
- For smartphones, drones and electric vehicles Chinese companies are pulling ahead.
- China lags in semiconductor sales and the U.S. has a commanding lead.
- China projected to maintain big lead in lithium-ion battery cell production.