June 13th, 2022 8:49 AM by Juan Luis Rodriguez-Kohly
The continued surge in housing prices has confounded economists, housing experts, and investors alike. Many believed that the end of mortgage forbearances or the sudden closure of Zillow’s iBuyer program was an omen of an impending crash in housing values. Next was the expectation that interest rate hikes by the Federal Reserve would at least cool the market. However, today home values continue to appreciate even after the Fed announced a series of interest rate hikes in the effort to stem inflation.
With home prices rising six times as fast as personal income it becomes clear that…
today’s housing market is both artificial and unsustainable. While the frenzy will eventually subside it won’t stop this spring which marks the height of the homebuying season.
Today homeowners are equity-rich thanks to a massive shortage of housing inventory and asset inflation as a result of the Fed’s endless money printing and near-zero interest rates. Yet there’s one group of homeowners stand to reap the rewards if they choose to secure a portion of their home’s new-found ‘equity’; Seniors.
Even if the central bank increased rates during each of its meetings this year, it’s unlikely that the resulting change in the 10-year Constant Maturity Treasury (CMT) swap rate would disqualify most thanks to the run-up in home values. Today the 10-year CMT stands at 2.0% which nearly mirrors the index’s rate in December 2019 before the outbreak of the Covid-19 pandemic.
However, should the Fed be forced to take more drastic measures to curb inflation, rate increases could escalate sufficiently to offset the recent gains in home prices with higher expected interest rates lessening available loan proceeds for reverse mortgage applicants.
Don’t sneeze as spring fever maintains today’s absurd home prices. Just like any season, this too will eventually pass, and with that passing the waning of a unique opportunity for older homeowners seeking to stop making mortgage payments.
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