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Fuel to the fire

Mortgage Rates and the housing bubble

Record low mortgage rates continue to add fuel to the fire / current housing bubble.  Take a look at this chart of mortgage rates and you will see that the rate on the 30-year fixed rate mortgage touched 5% only once since the last housing crash.  To be exact, the rate was 4.94% on November 8, 2018, plus fees and expenses, for an all-in rate of about 5.5% to close.  This week the 30-year fixed-rate mortgage was 2.86%.

The housing market was bailed-out after the last crisis and we are in yet another bailout right now.  Will it ever end, or is this the new normal.  Here is an interesting chart of mortgage-backed securities held by the Federal Reserve.  Right now they own close to $2 Trillion worth of mortgages, which represents about one third of home loans outstanding.  Their buying spree started back in 2009 during the last housing market crash and it’s been ramping up again due to COVID-19.

Fuel, meet Fire!

After viewing that last chart, maybe this one makes more sense.  Although the recent scramble to find single-family homes has reduced supply and therefore raised prices, there is still an invisible hand helping to keep this charade going.  Condo prices have lagged lately, but his average sale price of $645,124 in South Florida is bananas.  Is housing affordability gone forever?  If the Fed continues to artificially inflate the bubble that might be the case.  However, if they realize that they are doing more to destroy housing affordability for working families, maybe they will let the bubble pop.  It just doesn’t seem likely since we have essentially been in a housing bailout for over a decade.

Fuel for the housing bubble

Inventory of houses and condos in South Florida

Another factor adding fuel to the fire in the South Florida housing market is lack of supply.  The limited number of houses on the market across Miami, Fort Lauderdale and Palm Beach will continue to keep prices elevated. In January of 2011 there were 30,768 houses for sale across South Florida.  This July there were only 12,800 houses listed for sale on the market!

Fuel to the fire - low inventory of houses

Distressed sales and foreclosure filings

New foreclosure filings have been on hold for several months, but will rebound once the moratorium is lifted.  As far as distressed sales (short sale and REO transactions), they have just been trickling in at a snails pace.  This chart will be worth watching in 2021 as things gradually get back to normal.  The red line will eventually move higher as new filings pick up the pace, while the blue line will lag.

foreclosure filings, REO and short sales