US housing crash ‘highly unlikely’ even as mortgage rates surge to 14-year highs

US housing crash ‘highly unlikely’ even as mortgage rates surge to 14-year highs

The average 30-year mortgage hit a 14-year high on Wednesday, but the increase won’t spark a 2008-like crash in the U.S. housing market, investment strategist Louis Navellier told Insider on Wednesday.

Rates on the popular 30-year fixed mortgage jumped above 6% after Tuesday’s hot inflation report and growing market expectations that the Federal Reserve will continue to be aggressive in raising interest rates.

However, according to Navellier, the high level of equity will help limit any drawdown in the market.

“There are very real concerns that housing will continue to be hit hard by mortgage rates now well above 6%, although with very high average levels of home ownership, a housing crisis is highly unlikely,” Navellier said.

In other words, most homeowners are in the green when buying thanks to rising home prices over the past few years. That compares to the housing crisis of 2008, when a slump in home prices meant many homeowners were under the water when buying and eager to sell.

According to CoreLogic data, total median wealth per homeowner rose to a record $300,000 in the second quarter.

“U.S. homeowners with mortgages (which represent roughly 63% of all real estate) experienced a 27.8% year-over-year increase in equity, representing a collective gain of $3.6 trillion, an average of $60,200 per borrower, from the second quarter of 2021, ” CoreLogic reported last week.

According to the Federal Reserve, US homeowners’ equity totaled $29 trillion in the second quarter. That’s a significant buffer for homeowners who might fear a reversal in home prices.

However, house prices are not falling yet despite the drop in demand after the year-on-year doubling of mortgage rates. According to data from Altos Research, this could be because the supply of homes for sale remains subdued.

The supply of single-family homes for sale fell 1% to 547,000 last week, a jump from early summer levels but still near multi-year lows.

“There’s just a remarkable lack of new records,” Altos Research CEO Mike Simonsen said. “I expected we’d have 625,000 homes on the market now, but we only have 547,000. We’re currently projecting 470,000 by the end of the year, but that could be too high… We’ll start 2023 with fewer affordable homes than in in 2021?”

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The median home price fell from its recent highs of around $450,000, but just barely, to $439,900, according to Altos Research.

With demand falling but not cratering, and the supply of homes available for sale remaining subdued, a housing crash in the US is unlikely.

“The supply of homes for sale is too short for the market to tank hard,” Simonsen concluded.

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