Tension grows in the housing market

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Kai Ryssdal (0:54)

Bonds. That's it. That's the hole open. Bonds. From American Public Media. This is Marketplace.

In Los Angeles, I'm Kai Ryssdal. It is Wednesday today. This one is the 23rd of September. Good as it always is to have you along, everybody. We're going to spend, I don't know, the first 10 or 11 minutes of the program today, directly or indirectly on bonds. And what I want you to do every time you hear that word today is think of it as the cost of money. Bonds get sold and bonds get bought with an eye toward their yield. The interest rate, whoever issues the bond has to pay. And the yield on the 10-year Treasury bond today hit 5.135%.

Apologies for going to the third decimal place there, but when a government is borrowing, the way this government is borrowing, thousands of a percentage point really matter. So our indirect approach to bonds today comes via the mortgage market, where the 30-year fixed-rate mortgage now sits at almost 7.2%, a two-year high. Meanwhile, and to absolutely nobody's surprise, the Mortgage Bankers Association says mortgage applications have dropped for the third week in a row. And as Marketplace's Revenishual reports now to get us going, those two data points mean some things are happening in the housing market.

Sabri Beneshor (2:31)

So demand for homes is down, which makes sense. Buyers aren't thrilled about buying when mortgages are this high. But something else a little weirder is happening too.

Daryl Fairweather (2:40)

We're also seeing more home owners deciding to list their homes.

Sabri Beneshor (2:45)

Daryl Fairweather is chief economist at Redfin.

Daryl Fairweather (2:47)

Either these sellers are just tired of waiting because it's been so long that mortgage rates have been high, and if they're waiting for a better market, maybe they realize that that better market isn't coming, or they are getting nervous that prices might fall.

Sabri Beneshor (3:03)

More sellers equals more supply, and you add in slowing demand and home prices have slowed down, rising just 2% yearly, which is slower than overall inflation and slower than wage growth. And that would be great, except for the high mortgage rates. Ali Wolf is chief economist for Zonda.

Ali Wolf (3:20)

Since the start of the year, consumers have lost roughly 10% in purchasing power just from higher interest rates.

Sabri Beneshor (3:29)

When demand is like this and prices aren't rising much, builders aren't interested in building new homes. Dhanushka Naniyakara does forecasting for the National Association of Home Builders.

Dhanushka Naniyakara (3:39)

The permits numbers are down, the starts numbers are down, year to date.

Sabri Beneshor (3:43)

And building a home is kind of a long-term thing, so home builders usually look past short-term bumps in the road, like a flare-up of mortgage rates. But they are not looking past it because it isn't a short-term thing.

Dhanushka Naniyakara (3:57)

In our forecast, we don't have the mortgage rates coming close to 6 or below 6 in the next two-year window.

Sabri Beneshor (4:04)

There are some silver linings. If you're a seller, prices are at least still generally rising. If you are lucky enough to be able to buy, two out of three homebuilders are offering discounts to offset higher mortgages, and there are fewer bidding wars. In New York, I'm Sabri Beneshor for Marketplace.

Kai Ryssdal (4:20)

Wall Street today, bonds were selling off, stocks were selling off, oil was being bought. We will have the details when we do the numbers.

Our direct approach to bonds today is the new book from Robin Wigglesworth at the Financial Times. It's called A Fabulous Debt, The Epic Story of How Bonds Built the Modern World. It's all about the historical and also the very current context in which the bond market operates. Robin, it's good to have you on.