Why the housing doom and gloom stories are overstated if mortgage rates rise
Bottom Line: On one hand I produced a story today that depicts what's really up with our federal debt and the not-so-great longer-term picture it paints for our country. On the other hand, I'm here to tell you that the sudden punditry suggesting that the rising interest rates will crash the housing market are incredibly overdone.
Without a doubt would be home buyers should be super aware of the rising interest rate environment that's already led to four-year highs for mortgage rates recently (with 30-year fixed rate mortgages reaching 4.5%) and likely to rise going forward along with an improving economy. The average 30-year fixed rate mortgage historically is 8.5% and would add nearly $900 per month to the average mortgage payment for a home in Palm Beach County. That's obviously a big deal - however it's not the only deal.
I've noticed a series of stories being advanced of late suggesting that housing is potentially in trouble going forward because of the rising rates. That'd be true if the only thing changing were rates. It's not, nor does everyone take out a mortgage, therefore there's a lot more to the housing story. First and foremost, 29% of homes purchased in 2017 were purchased with cash. Despite home prices having risen that was actually up from 28.7% in the prior year. So, first and foremost, nearly a third of the real-estate market isn't tied to mortgage rates. Next up incomes...
The average American making the average full-time income ($48,000) will save 4% this year on their taxes. What's more is that wage growth was pacing 3.6% in January for the start of 2018. That means that the average American will have well in excess of 7% more net take home pay this year. That's the largest year over year increase in net take home pay in 32 years. That enables the ability to digest increased mortgage rates and home prices. Unless something drastically changes in the economy - there's no reason to believe the housing market won't be stable to strong throughout 2018.