I remember those days….on the other hand the economy is strong. Just look at the numbers.
I believe home buyers are going in with the idea of refinancing.
The numbers keep getting revised to look worse (employment). We are just getting started on the longer tail of higher rates.
I think refinancing is happening because homeowners need cash with consumer debt on the rise.
If mortgage rates go above 8.5% we may hit a tipping point.
That would likely mean FED going up another full point. Rates are currently 7.5% which is around the norm of 2pts over FED Funds. With the FED pausing, we could see rates dropping some as banks look to capture revenue at higher revenue with lower FED Funds coming in the next 12ish months.
More likely tipping points:
Consumer Debt continues NORTH
More banks start failing due to Commerical RE and potentially some due to consumer debt defaults
Consumers don't qualify for refinancing and/or can't find a bank willing to refi this higher-risk consumer... leading to higher foreclosures and/or bankruptcies
Unemployment (keeps getting revised to look worse) goes up leading to more consumer issues
The cost of borrowing especially urgent credit (cards, business lines, personal lines...) becomes very costly to the borrower AND tougher to get. Commercial and Consumers alike.
Multi-family apartments aren't flooding the market BUT there are a ton of doors getting added which will reduce the pressure on the single-family market as rent rates drop due to extra supply.
Then the FED pivots due to the slowdown (2024) and we hit a full recession in late 2024 or more like 2025. The FED will likely have reduced their balance sheet to 6T maybe 4-5T if they get super lucky. 2025 hits and IF the blue wave hits Congress we see a big spend to help consumers with tax credits etc.
Thus, 6-12 months before we see real issues. If 6, republicans win Congress. If 12, democrats win Congress. 18-24 months before we hit the bottom with residential real estate likely at the bottom around the same time depending on markets (some won't drop and some have already had massive drops). As soon as rates get under 7%, that market will start heating up but I don't think that happens for another 12-18 months.
Things like student debt forgiveness could give a large % of consumers a lifeline to keep spending. In the end, it just kicks the debt to the government or private sector. The FED doing QT and sucking trillions out of the economy WILL cause a recession. IT will happen if they continue to do so because the 9-10T of covid QE was spent and now they are pulling trillions back.
