2022 Theme: Higher Housing - What Do Swiftly Rising US Mortgage Rates Mean For The US Housing Market?

The era of excessively cheap mortgages is over. Will that change the red hot housing market?


The reason might have less to do with classic supply and demand dynamics and more to do with how issues like inflation are changing the very structure of how the market works.


The rate of the average 30 year fixed US mortgage finally rose the over symbolically important level of 4% this past week. It was the first time they have been this high since 2019.

For posterity, please note that the Federal Reserve finally hiking US interest rates by 0.25% did the trick on Wednesday.

It went higher still on Thursday reaching 4.16%+. This is quite a move. It was barely above 3% at the start of the year.....

More importantly, mortgages actually don't track the discount rate or the fed funds rate but rather longer term interest rates (the US 10 year bond is a better proxy).

So, this week's Fed hike is only tangentially the cause here. The real reason that mortgage rates are moving sharply upward is the continued presence of elevated inflation.

This is understandably making investors very confident that the Federal Reserve will continue to raise rates steadily going forward which will feed through to high interest rates overall.

The most important remaining question is obviously:

  • What does this mean for the housing market?

"Not much," is the simple answer. At least for now.


According to the National Association of Realtors there is a total of 1.6 months of housing supply available.

Here is another good way to put it. The per capita of home for the US's population remains low and falling:

  • So, yes fewer people can afford homes at a higher rate but there are still very few homes for sale period. This trend of lower affordability will have to go far further before it really began to impact the hot housing market.

The housing demand versus supply is therefore still incredibly imbalanced. A 0.25% rise in the US interest rate, even a few of them, won't immediately derail this.

What would really change the dynamic would be more housing supply. But housing is difficult to build. Especially now. We will likely return to this topic in the future but for now we will leave you with the words of Jon Jaffe, the Chairman and CEO of Lennar, the US's largest private home builder:

  • "The ability to actually build and deliver homes has been slowed by the supply chain that is all but broken" he said.

The combination of constant supply chain disruptions and inflation have sent prices of raw materials surging – leading to an increase in the number of days it takes to complete building a home.

This makes raising housing supply - already a very difficult and laborious task - even harder. It suggests very strongly that housing supply will remain constrained over the next few years no matter what occurs.

An already very unequal market is only likely to become more stretched.

A last thought:

High inflation is having another, unspoken, impact on the housing market.

  • One of the more pernicious things about housing in present day developed countries (not just the US but also Canada, Australia, United Kingdom etc) is that they don't just provide shelter from the elements but also a shelter from high inflation.

Houses are real assets. And real assets tend to protect their value vs inflation. This may not - yet - be preached by realtors' billboards but it is very likely already driving at least a part of the market.

One of the toughest and most important markets for everyone - homeowners and renters alike - is just getting tough.


Have questions? Care to find out more? Feel free to reach out at contact@pebble.finance or join our Slack community to meet more like-minded individuals and see what we are talking about today. All are welcome.


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