Falling Mortgage Rates Aren't a Good Thing for Housing

• Author: Chris Remington
• Posted: 2024-01-30

People aren't exactly sitting on the edge of their seats, excited about receiving the newest details about America's housing market. This is because most of the news has been very bad for over two years now. People are just tired of constantly hearing that they may end up losing their homes or that they may not be able to buy or sell a home for the foreseeable future. Unfortunately, this week's news isn't a good piece about the housing market either. It's just more of the same. According to the foremost housing and economic experts in America, the current trend of falling mortgage rates is more dangerous for the housing market than skyrocketing trends. The issue, as explained by these authorities, is that the market is overall just too erratic and therefore inherently unstable.

Granted, these are week-by-week housing trends, and so you expect to see a lot of flux here. However, the mortgage rate metric falling by 6.6% in a single week is a huge shock to the market, especially since listing prices are up over 11%. Sadly, however, the most disturbing metric here is a combination of active listings and time on the market. Active listings are up nearly 45% while the time on the market is extended by over a week. This means more people are attempting to sell their homes but no one's buying them. This, of course, during a housing shortage. Experts claim the reason is that the home listing prices are way too high for most people to get a mortgage, either because they can't qualify or just can't afford it. Home prices have more than doubled in three years. This is a seriously disturbing problem. Millions have been priced entirely out of the market, and most mortgage lenders cling to their loans and refuse to lend unless people have immaculate credit and great jobs.

Freddie Mac claims that mortgage rates have been the most erratic part of the housing market recently. At the tail end of October, they shot up to a 20-year high of over 7%, almost immediately before dipping back down. Every single time something happens in the housing market, the mortgage companies that control the market decide to raise or lower rates. Americans have seen this before, back in 2008, when these huge companies completely trashed the market and nearly crashed the global economy. And they were rewarded for it by the government.
 

What is Good for the Housing Market?

People who keep up with news about the housing market may be shocked at this point that there never seems to be any good news. Whether mortgage rates spike up or fall down, the so-called experts claim it's bad in the long run for the market. If home prices are high, it's bad; if home prices are low, it's bad. Some people may come away thinking that the news surrounding the housing market is just flat-out fake and hysterical, with publishers just wanting to sensationalize their stories to create panic. There may be a grain of truth in that, as most of these stories are published by corporate-owned mainstream outlets, after all. However, the fact is that the housing market is bad because inflation is so incredibly high. It really is just as simple as that. And so no matter which way the wind blows in the housing market, the long-term prospects are just terrible. The thing to keep in mind here is that the prospects are bad due to inflation; it's inflation that's causing all these other issues.

When lenders don't want to lend, it's because they have lower expectations of receiving payment due to normal people having to prioritize food over making APR home payments. When people buy too many homes, or not enough homes, it's a leverage play either way based on the forecasting of the housing market relative to the rates of American inflation. So, to put it simply, as long as inflation continues to be a problem in America, the housing market in the aggregate will remain in a state of flux, where some weeks it's doing better than others but at no time is it solid. This is just the way the coin falls when inflation rates are the highest they've ever been. Heads, you lose; tails, you lose worse.

The only thing that's going to help save America's housing market this go-round is to have inflation fall back to a controllable range where consumers have confidence and enough money to spend on fair housing rates.