Monthly Mortgage Payments Up Record Year-over-year

New Homes sales and Single Family Starts to Fall Further

On Friday, the average 30-year mortgage rate hit 6.7% for zero points and top tier scenarios according to MortgageNewsDaily. This was the highest rate in 20 years.

Here is a graph showing the 30-year rate using Freddie Mac PMMS, and MND for last week.

Yes, rates were much higher in the 1980 period, but it is the change in monthly payments that impacts housing. Monthly payments include principal, interest, taxes, insurance (PITI), and sometimes HOA fees (Homeowners Association). We could also include maintenance, utilities and other costs.

The following graph shows the year-over-year change in principal & interest (P&I) assuming a fixed loan amount since 1977. Currently P&I is up about 59% year-over-year for a fixed amount (this doesn’t take into account the change in house prices).

This is above the previous record increase of 50% in 1980.  This assumed a fixed loan amount - if we add in the year-over-year increase in house prices, payments would be up over 70% YoY for the same house.

This is one of the reasons I've argued Housing: Don't Compare the Current Housing Boom to the Bubble and Bust, Look instead at the 1978 to 1982 period for lessons.

And here is a graph comparing the change in P&I payments, and the change in new home sales (Note: for new home sales, I used a 3-month centered average to smooth the graph).

The YoY change in mortgage payments is through mid-October, and new home sales are through August 2022.

This is a noisy, but generally when interest rates are rising (red), new home sales are usually falling (blue). And when interest rates are falling, new home sales are rising. The housing bust / financial crisis saw new home sales fall with declining interest since there were so many distressed sales.

In the 1980 period, new home sales fell about 40% YoY and about 60% from the peak in the 1970s to the trough in 1980. A similar decline might push new home sales down to around 400 thousand SAAR in coming months. This is new home sales through the August 2022 report.

In 1981, single family housing starts fell over 60% from the peak in the late 1970s (red on the following graph). A similar decline now would push single family starts down to around a 600 thousand SAAR - a significant further decline from current levels.

Even though we can expect significant further declines in new home sales and single-family housing starts, the good news for the homebuilders is activity usually picks up quickly following an interest rate induced slowdown (as opposed to following the housing bust when the recovery took many years).