Winter is coming, and the housing market—saddled with mortgage rates approaching 7.50 percent—is making the soft, crackling sound of a pond freezing over.
Since late last winter, mortgage rates have risen more and faster than at any time on record going back to 1971. Rates have roughly doubled in the past eight months, and the P&I payment on a given loan has increased by half in that time. In 1994, the Fed pushed mortgage rates from 7.00 to 9.25 percent, and by 1995, rates were back down to eights and even sevens. All of this followed a period of double-digit mortgages in the 1980s.
Volcker’s legendary interval as Fed chair, from 1979 to 1987, followed 15 years of rising inflation. Mortgages were at 11.50 percent when he began his campaign in October 1979 and were 16.50 percent seven months later. Back then, housing could defend itself with assumable loans and a madcap variety of creative financing deals such as wraparounds, owner-carries, the infamous “stated income” loans, and more.
Today’s rates look good by comparison, but the housing market is in change-shock. It pays to be alert and clear-eyed right now—don’t get your feet frozen in that pond.
The Front Range market is enormous now, with thousands of micro-markets, each with different outlooks, each with sellers suddenly open to negotiation. The low end is always safest for buyers. Out east, beware builder liquidation. Don’t expect prices to crash—this time around, borrowers are qualified and Colorado’s strengths are intact with in-migration, plentiful IT jobs, high quality of life, and super-scarce land.
Be picky, but don’t let today’s interest rates freeze you out of a good home. If rates come down, a mob of lenders will be happy to help you refi. If they don’t drop, then the timing won’t have mattered after all.