Courtesy Steven Luttman
By Steven Luttman
Few things warm my heart more than a trip to the Lake George outlets.
Some might say cheap, others prefer “financially thoughtful,” but no matter what you call it I like finding a good deal. No doubt many of you feel the same way. Think for a moment about a purchase you’ve been considering recently.
If this item were to become available for 79 percent less than its historical price how excited would that make you? That’s an amazing value. People line up hours in advance for Black Friday deals less great than this. But before you take out your wallet, what if at this exact same time last month the item could be had for 85 percent off. Given that the discount has shrunk, is it still attractive today? Of course, it’s a no brainer.
Freddie Mac’s weekly lender survey found the average 30 year fixed rate mortgage closed out the month of March at 4.67 percent, a sizable jump from the sub 3 percent we were seeing as recently as November.
For anyone that’s been eyeing a home purchase or refinance it’s easy to think “I’ve dropped the ball here, rates are just way too high now”. With a short term perspective you wouldn’t be wrong. However if you were to line up the average rate for every single week over the past 50 years, rates are lower today than they’ve been for almost 80 percent of those data points since 1971.
The rise in borrowing costs we’ve seen in 2022 can be attributed primarily to the Federal Reserve, who in an effort to combat inflation recently announced their first increase to the target Fed Funds rate since 2018. While Chairman Powell can influence short term yields via monetary policy, longer dated maturities are dictated more so by the buying and selling of Treasuries done by investors. It’s the latter that drives mortgage rates.
Advisory firm MCT stated the historical spread between the 10-year Treasury yield and the national average 30-year fixed rate mortgage is a touch under 2 percent. Contrast that with the roughly 2.25 percent gap today and one could make the argument this year’s run up in home loan rates is a bit over heated.
While mortgage rates often get the headlines, the true culprit of decreasing affordability is the lack of housing supply. A healthy real estate market is generally defined as having six months of available inventory, meaning if not a single additional home were listed for sale it would take six months for buyers to absorb the current stock.
According to GCAR we currently sit at 1.3 months, an all-time low for the Capital Region. This unfortunately will not be a quick fix, and will require a collaborative effort between the private and public sector. Items most needing to be addressed are restrictive zoning policies by municipalities as well as a lack of skilled laborers among others.
Home builders took a sizable hit during the great recession, many going out of business or choosing to pursue other career paths. The consequence today is that new home starts (newly built homes) will end the year somewhere near levels of the mid 1990s, a time when our country had 75 million less citizens.
Some good news is that all of this is happening during a time when wages are increasing at a pace not seen in many employees’ lifetimes. 2021 saw average salaries rise 4.5 percent according to the Bureau of Labor Statistics, and experts anticipate a similar albeit slightly less bump this year. Rising pay for many households should offset much of the pain simultaneous increases in cost and borrowing expenses associated with buying a home has created.
Did you miss the bottom? Almost certainly yes. It’s hard to envision an environment conducive to that sizable of a retreat. However, let’s not be in the business of trying to time financial markets. That’s for day traders and that sounds exhausting.
But just like me loading up on cardigans at an end of season sale, we want to recognize value when presented with it. Borrowing costs in 2022 are still a good deal.