The Housing Nightmare Is Developing Right On Schedule

We will return to covering the “alternative” side of investing in tomorrow’s edition of The Juice. To catch up on recent posts in that area, see today’s Freshly Squeezed section at the bottom of the page. 

But today, we focus on housing. Because the scenario The Juice has been predicting and detailing for roughly two years now is showing signs of playing out. 

It might have gotten lost in the Thanksgiving holiday shuffle, but the headlines last week blared like this: 

Homebuyer demand for mortgages jumps 12% after first interest rate drop in over 2 months

We’re here to tell you that the “interest rate drop” was nothing.  

On the 30-year mortgage, we went from a November high of 7.1% to 6.95% when those stories hit. We’re skeptical that this bump in mortgage applications is little more than a coincidence. But taking what the analysts say at face value, if this is true, holy crap. 

If just over a tenth of a percentage point gets that many buyers off of the sidelines, things do not bode well for a housing market where supply is already constrained. And, if Trump’s tariffs actually happen, let’s just say they will do ZERO favors for homebuilders. 

Lumber prices are already up about 17% year over year. If Trump implements tariffs, expect lumber and, also, steel to get more expensive from US companies who often import these materials from Canada. 

But, setting tariffs aside, our original thesis holds and is playing out. Lower interest rates bring people off of the sidelines, which will drive prices up. Many of these buyers simply can’t wait much longer. And, in quite a few cases, they’re armed with home equity and ready to spend to get what they want.

The difference between a $750,000 loan at 7.1% and 6.95% is about $75 a month. If we see rates fall more, imagine how many more buyers will enter the market. It will be wild, given that this little tick down increased applications by 12%. 

If rates don’t fall — and this is a potential reality in a Trump economy — we’re stuck with the original problem that’s likely to go away anytime soon. Prohibitive monthly payments. 

That $750,000 loan at 6.95% results in a $5,525 monthly payment. To be able to afford that payment, you must earn about $221,000 a year. 

Sometimes it’s tough to believe that this is the world we’re living in and the largely ignored housing crisis we’re dealing with. 

As for prices, via Bill McBride’s Calculated Risk blog—

• On a seasonally adjusted basis, prices increased month-to-month in 18 of the 20 Case-Shiller cities. They’re up 3.9% year-over-year, as of September. 
• The Federal Housing Finance Agency (FHFA) House Price Index shows an annual increase of 4.3%, as of the end of Q3. 

We don’t think we have ever seen clearer writing on the wall. 

The Bottom Line: And nobody is doing a damn thing about it. 

Kamala Harris’s housing proposals were weak at best, if not outright lame. And Trump’s might as well be non-existent. The idea that tariffs will force companies to manufacture goods in America and life will then be good for everyone is not housing policy. Here’s hoping this is all posturing. 

But whatever it is, we need real action on housing. Because, without anything resembling affordable housing across much of the nation (particularly in places where the jobs are), the future isn’t bright for the youngest generations of Americans. And some older ones, too.

• Bill McBride’s Calculated Risk Housing Blog
• Navigating Market Volatility: The Alt Advantage
• Are Alternative Investment Options Only For ‘Professional’ Investors?
• What Are Alternative ETFs?