Here’s Why The Housing Market Needs Higher Rates

This was a big story on Housing Wire after they interviewed Logan Mohtashami. Logan cites the only tool to cool off the housing market is higher mortgage rates especially when supply keeps dropping. Thus, we must slow down demand and the best and only way to do this is higher mortgage rates.

Logan is correct, but I am worried that today’s higher mortgage rates will cause supply to shrink even further. Why move if you have a rate < 3% when rates are now over 5%? The only people who will move will be ones who are “forced to” by divorce, marriage, having children, and job relocation. Also, higher mortgage rates negatively impact home builders which is why their stock prices are down big this year. In 2018 mortgage rates nearly hit 5% and new construction quit increasing for 30 months because of this. And I expect home builders will start to see more cancellations because of these higher rates. Thus, there may be more supply in the short-term as some buyers cancel their contracts with builders. But, in the long-term if builders slow down new construction that is bad news.