hosted by: Business Development Specialist, Ann Vaeth
special guest: Chris Cogliano, Portfolio Specialist & Investment Analyst
To accompany this month’s Market Wrap Up, Chris joins Ann Vaeth to discuss the U.S. mortgage market, focusing on the residential mortgage market of today and historical trends. Listen to gain perspective especially if you are considering a housing change!
As always, we welcome any questions you might have!
- Mortgage Market and Residential Housing 0:34
- Recency Bias 1:53
- Recent Home buying trends 3:00
- Existing vs. New Home Sales 3:17
- Pricing Dynamics 4:44
- Recap. Call us! 5:00
Full text transcription:
Hello, everyone and welcome to coffee commentary. I have with me Chris Cogliano. Hi, Chris. So today we’re going to dig deep into the residential mortgage market. You might have seen in our latest market update by Chris that had an interesting graph on residential mortgages. And so we’re going to dig into that more and some other areas as well. So let’s start. Chris, why don’t you explain the general overview of the US mortgage market?
Sure. So when doing our research, we found that about 70% of the US mortgage market is actually in residential single family mortgages. And so why we think that’s important is because obviously that makes up the bulk of the market. But a lot of those mortgages are at really low rates. So when looking at the statistics, about 90% of outstanding mortgages in that 70% are at 6% or lower. So, we believe that creates a strong foundation for households across the US. In recap, in the 30 year mortgage realm, 90% are 6% or under.
Yes. Now, what’s the historical average?
So the historical average going back to the 70s is about 7.75%.
That’s well below that. Yep.
And currently, we’re at 7% right now. So if you were to buy a new house and take out a 30 year mortgage, you’d be essentially underneath the 50 year average.
Alright, so I’m looking now to find a house and I buy it with a 7% mortgage. But I still feel bad that I missed the 6%. What do we call that?
Right. So rates were historically low in 2020 through 2022 due to the Fed cutting rates due to the pandemic, and so a lot of people refinanced and there was a surge in activity during that time. And so the scenario that’s been created is that a lot of current mortgages are at lower rates than historical averages.
Why does that provide resiliency in the housing market?
If you look at household debt and the consumer, it’s obviously an easier burden on people when they have a lower interest rate on especially a 30 year mortgage. So that creates a strong foundation to give that market more resiliency, especially if there’s cracks in other areas of the economy.
Okay, so that’s a strong part of the economy that we are all situated in. Well, those of us who have mortgages. Now, let’s say I have to buy a home because, of course, people have to move or people need to buy first homes. Where are these new homes coming from? Because if I have a good mortgage, I’m not going to want to leave my home.
Yes, so that’s what we’re also seeing with existing home sales versus new home sales. So “existing home sales” is basically anytime someone sells their house that is not new. And so it’s a broad category, but basically, when we’re looking at the numbers, we’re at multi-decade lows for existing home sales. We briefly touched these points at the beginning of the pandemic when activity was shut down. But the only other time that we were really at this level was post great financial crisis, right? No one was buying.
So with existing and new homes, we saw a break in activity, like I said, for the pandemic, and then we saw a surge in activity and that was when the Fed cut rates to almost zero and mortgages were extremely cheap. And now since the Fed has done the opposite and has been raising rates, we’ve been seeing the reverse of that and so existing homes have been back at low levels as I previously discussed but new homes are starting to trend back up.
So it’s an interesting dynamic. And so that means builders are building Yep. And people are buying the new homes.
Yes, because there aren’t as many of the existing homes for sale.
Yeah, exactly. And so that’s what we’re seeing with the pricing dynamic as well. Demand is still fairly high. People are looking to purchase homes. But the no one’s really looking to move because as we touched on, a lot of those people have locked in low interest rates.
So to wrap up for our client base, our clients have many different housing situations. They may own houses, they may be in a position to sell, they may be looking to buy. And in those cases, if you have any questions about your current living position and what you might want to do, give us a call because we have people like Chris and your advisor to walk through those scenarios with you. And of course, housing is huge part of any financial plan. So please give us a call and we’d be happy to have a discussion with you!
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