5 votes

Rising Home Prices & a Flat Economy Don't Mix

“Mortgage Interest rates, even though they have risen, are still at historically low levels” – common refrain from those saying the housing “recovery” can continue.

It’s hard to argue with a true statement, but it’s easier to argue against the supposed consequences that flow from such a statement.

Here are three more true statements:

1. The labor participation rate is a its lowest in thirty two years. This means fewer people as a percentage of the population are working. One of the main requirements of getting a mortgage is being able to show stable employment and the ability to pay back the mortgage. A smaller percentage of the population is able to do this today than they were two, three and thirty-two years ago.

2. Wage rate growth has been non existent in the past few years and wages have actually dropped. People with jobs are making less money today than they were two or three years ago.


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Rising Interest Rates

The fear of rising interest rates is causing some renters to purchase homes, so that they can lock-in a 30yr loan. This stimulates buying in a market with artificially low supply, thus raising home prices.

agree but that is a temporary situation

the fence sitters stepped up for fear of getting priced out.

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How do rates not matter if the whole reason for QE

was to driven them down to stimulate housing?

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