Is the housing market about to get more dysfunctional?

In a piece of recent news, the U.S. housing market this spring selling season is looking like a multicar collision, a result of powerful forces crashing into each other. This will result in several things. Interest rates on home mortgages have spiked more rapidly than they have in decades, reducing affordability. Builders cannot get adequate supplies to construct houses more quickly. Yet strong income growth and unstoppable demographic forces are propelling high demand.

 

What makes the spiked housing market a concerning?

 

This becomes a concerning matter as it is likely there will continue to be a gap between supply and demand—making for a frustrating market for all involved. The rise in mortgage rates in recent weeks is jaw-dropping, and outside the range of any recent experience.

The average rate on a 30-year fixed-rate mortgage was 4.42% last week, Freddie Mac said, up from 3.76% three weeks earlier. That’s the biggest three-week rise since 1987. The rate was 3.05% just three months ago. However, those numbers are already outdated, based on mortgages locked in last Monday through Wednesday. By the end of last week, Mortgage News Daily’s average came in at 4.95%.

 

What would be its impact?

 

The speed and the scale of the adjustment mean that a family that can afford a $2,000 per month mortgage could have borrowed $424,000 at the beginning of March — but only $375,000 at Friday’s 4.95% rate. Higher rates reflect a shift in messaging from the Federal Reserve.

While the central bank has raised its short-term interest rate by a mere quarter-point, long-term rates like mortgages are shaped by investors’ expectations of the future path of the economy and Fed policy. That has turned markedly toward higher rates since December.

 

What would be its impact on the supply side?

 

The supply side of the market has its own troubles, as homebuilders have not been able to deliver enough houses to address demand, holding back sales volumes. “Our biggest challenge today is completing homes, not selling them,” KB Home chief executive Jeffrey T. Mezger said in an earnings call last week.

Among the materials in short supply, said COO Robert McGibney: “steel ducts needed for HVAC systems, ovens, garage doors, windows, cabinets and siding. He added that “we expect shortages of materials will stay with us throughout this year.” It may be a bumpy path as the housing market finds a new equilibrium. Rising mortgage rates will limit what buyers can bid, yet it is high prices that incentivize suppliers to ramp up production.

Meanwhile, homeowners with a low mortgage rate may be more reluctant to sell and give up the benefit of a sub-3% rate, further limiting supply. The bottom line is we may end up with less supply and transaction volume, worsening America’s housing affordability crisis.

 

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How are Global Leaders Responding to Soaring Inflation?

Currently, the market is witnessing heavy inflation. The Russian-Ukrainian war has majorly contributed to the plunge of shares within the global market. Moreover, this drop in stock shares is further resulting in soaring inflation within the worldwide market. Amidst such soaring inflation, global leaders and investors are attempting to predict the future of the global market. One such instance is the influential world leader and the Tesla CEO Elon Musk has marked his words on the inflating scenario.

As soaring inflation continue at a pace not seen in decades, Tesla CEO Elon Musk said to own physical assets over cash. In a tweet around midnight recently, the Tesla founder said: “As a general principle, for those looking for advice from this thread, it is generally better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high.

 

Holding onto Personal Shares

 

Even so, Musk said he is holding onto cryptocurrencies. “I still own & won’t sell my Bitcoin, Ethereum or Doge,” he added. The comments come as the consumer price index for February rose 7.9% from a year ago, the highest level since January 1982.

Investors may turn to physical assets such as commodities during inflationary times, as inflation boosts the prices of those holdings. Musk’s comments on crypto briefly moved the price of bitcoin higher before the digital asset pared gains. Bitcoin was nearly flat at $38,940.47 by around 7:30 a.m. ET.

 

Current Price of Bitcoin

 

The price of bitcoin is down nearly 19% in 2022, according to CoinDesk data. MicroStrategy CEO Michael Saylor earlier in the Twitter thread touted crypto as an inflation play. “Weaker currencies will collapse, and the flight of capital from cash, debt, & value stocks to scarce property like #bitcoin will intensify,” Saylor said.

The two CEOs are known as prominent figures in the crypto space, both having added bitcoin to their respective company’s balance sheets. Musk’s comments in the past have regularly moved the price of digital coins.

 

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