This Is What 5% Mortgage Rates Mean Now For The Housing Market

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

So Tracy, you bought a house recently. That's kind of like winning the lottery in this economy.

Tracy Alloway (0:22)

I know, well, okay, so first of all, we put in three offers for different houses, and we got gazumped on all of them. We got outbid.

And then finally, we found a house that we really liked, and it happened to be a probate sale. So the owner had actually died, and it was going through this probate process. So no one else wanted it, because no one else wanted to deal with that. So we actually got that house, and it's been really amazing.

Joe Weisenthal (0:47)

It's kind of like an Odd Lots of housing, right? I mean, like a literal, like here's like this like asset that didn't go through. It's not the normal thing, and you have to put in a little extra work to move it, and it took advantage of that.

Tracy Alloway (0:57)

That's right, we did our due diligence, and we were very patient at a time when a lot of people kind of are worried about missing out.

Joe Weisenthal (1:04)

No, it really has been an extreme, I mean, the last two years have been extraordinary for all kinds of reasons, particularly with housing. We've done a handful of housing episodes before, but it feels like maybe we're at some sort of turning point because rates have just seen one of the biggest upward move. Mortgage rates just hit 5%. Like, maybe something's changing here.

Tracy Alloway (1:25)

Is this the peak housing market episode that we're doing right after I bought a house?

Joe Weisenthal (1:31)

Yeah, and now, right, so we've jinxed your home purchase, and now you're going to be underwater for 10 years. But it does feel like something's changing here.

Tracy Alloway (1:38)

That's right. So we saw the 30-year mortgage rate hit almost 5% quite recently, which is a very big increase from what it has been over the past couple of years. And there's this wider macro discussion going on right now about financial conditions as interest rates rise.

How much of an effect is that going to have on financial conditions and the overall health of the US economy? Are homeowners going to start feeling the pinch of these higher rates, or have most people at this point actually refinance their mortgage at very, very little rates?

Joe Weisenthal (2:13)

Yeah, you know, I was thinking about this, you know, the other interesting thing about housing is it's such an important part of the economy, obviously. It's a huge source of wealth, housing assets. It's a huge source of consumption. People need to pay rent or have a place to live.

And as we've sort of being reminded in the last six months or a year, it's a manufactured asset. It has a supply chain like everything else.

And we don't, I think for like 20 years or for a long time, we did not think much about that aspect of housing. You just take it for granted. You get the wood, you get the workers and so forth. The labor part had been stressed for a little while pre-COVID. But I think that like, we're all sort of being reminded that homes have like tons of parts, like a car has tons of parts. And if you're missing one thing or a part of wood, for example, gets really expensive, then that makes building the new house difficult.

Tracy Alloway (3:02)

Right, so it feels like we have all these different push-pull factors. So on the one hand, housing finance, the cost of a house is very, very expensive at the moment. And with rates going up, you would expect it to get even costlier. But on the other hand, you're not necessarily seeing the supply response because of all these supply chain and logistics issues that we've been talking about. Right.

Joe Weisenthal (3:25)

Well, I'm very excited. We're going to have a big housing conversation because as you mentioned, mortgage rates nearing 5%, macro things, what's going on there, micro things, supply chain, commodity, all kinds of questions. We had to bring on two guests this time to help us bring it down.

We're going to be speaking with Dustin Jalbert. He is the Senior Economist at Fastmarkets in the wood products area. Great on the sort of supply chain costs, lumber, all those things. What's going on there?

And we're also going to be speaking with Conor Sen, columnist for Bloomberg Opinion, founder of Peachtree Creek Investments, longtime friend of the podcast, but amazingly, I think this is his first time actually coming on.