Below is a chart and brief excerpt from today's Early Look written by Macro analyst Christian Drake.
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As we highlight recurrently, when rates aren’t really moving they don’t particularly matter to housing, but when they are moving they are all that matters. During the active rate shock period, housing effectively becomes a single factor model with rates as that causal factor. To make this a bit more tangible, consider the following hypothetical: Most buyers target their home search and anchor their decision calculus around the monthly payment amount. If rates move sharply higher quickly, some buyers will no longer be able to qualify to buy the house they wanted. Think of someone who can afford the monthly payment on a $300k house and suddenly rates move from 4% to 5%. Now, with the same payment, they can only afford $270k. The seller still wants $300k and the buyer still wants the house, but they can no longer afford it at that price. This happens everywhere and suddenly transaction volume slows because the sellers and buyers suddenly find themselves far apart. Eventually, the buyers come up a bit and the sellers come down a bit and activity resumes, but at a lower price level. The above typifies the sequencing of dynamics associated with negative rate shocks. The impact of positive rate shocks is similar, but in converse (as we’ve just witnessed, again). |
