Can The Housing Market Handle 7 Percent Mortgage Rates? Stay Tuned
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At times like these -- with mortgage rates spiking dramatically -- we find it crucial to seek out clear-headed insight into the complicated forces that determine interest rates. We know of no better place to find it than Lou Barnes’ weekly column at Inman.com. (Please, tell us of other good, timely sources: email lalandblog@yahoo.com).
His column this week is a must-read, and makes two big points: the recent period of extremely low interest rates was a historical aberration. And it might be over, which is why he warns of the possibility of a ‘7 percent mortgage shove from behind.’
First, why did low rates happen at all? Globalization and cheap labor allowed the Fed to stop worrying about inflation: ‘The entry of two billion subsistence-wage Asian workers has been the mother of all inflation suppressants, capping global wages no matter what happened to prices for or oil or commodities or food.’
(Aside: One of the great and rarely written stories of our time is the dramatic, and ongoing, collapse of the American labor movement. To anyone who wants to assert the vibrancy of organized labor, please show us the union in Los Angeles whose members can afford to buy a median-priced home today. The NBA players’ union does not count).
But as usual, we digress. Barnes describes a sudden mind-shift in which economists believe the ‘Asian wage suppression’ effect on global inflation is ebbing. He’s not convinced, but the result is real: an interest rate world that suddenly ‘lurches toward normal,’ with rates running ‘toward sensible levels,’ as they should: ‘Long rates are supposed to rise into a hot economy and uncertain inflation future.’
Can housing handle higher rates? It’s beginning to look like we will find out.
Comments? Insights? Your own interest rate analysis? As our president once said, Bring It On.
Photo Credit: Reuters