Commercial real estate properties :
Upwards of 50 % of all commercial property mortgage debt is a floating or adjustable rate . Additionally , the cost to insure the interest rate cap derivatives contract that protects both borrowers and lenders from the increasing risks associated with rising rates has increased 10fold for borrowers , as per the Wall Street Journal . As such , it ' s a double whammy for commercial mortgage borrowers in that both their mortgage and insurance rates have skyrocketed over the past year . The commercial sector is still getting hit harder than residential .
Listing Supply
The St . Louis Fed and Realtor . com share data together , which shows both the current and past history for singlefamily homes , townhomes , and condominiums across the nation at any given time . As with other products available for purchase , a lower supply of something like eggs or popular toys will likely lead to higher prices due to the demand exceeding the available supply . Conversely , an oversupply of a product and falling demand will cause prices to fall .
Let ’ s review the national home listing trends dating back to 2016 : The U . S . Census Bureau recently published data for the 4th quarter of 2022 which showed that there were 15 million vacant housing units ( homes , condos , and rental apartments ).
Vacant " shadow inventory " homes that are NOT listed for sale absolutely dwarf the total number of listed homes nationwide by a significant multitude . This has been true since at least 2009 . If just 5 % or 10 % of the " shadow inventory " homes suddenly changed to homes available for sale , it could double the size of the national listing supply . “ Shadow inventory ” homes can also include homes already foreclosed upon by banks or mortgage loan servicing companies that are not offered up for sale .
Mortgage Rates
Approximately 75 % of all homes nationwide were purchased with mortgages in recent years . Almost every boom and bust housing cycle over the past 50 + years was directly related to mortgage rate trends .
Between April 1971 and September
2022 , the average 30year fixed mortgage rate was 7.76 % as per Freddie Mac . Today ' s rates for borrowers with average FICO scores near 690 have fluctuated between 7 % and 8 % in recent months . The main difference today is that mortgage balances are two , three , four , or five times larger than in decades past .
We ’ re in the midst of the fastest mortgage rate increase in U . S . history . The Federal Reserve ' s rate hikes at a record pace over the past year are likely to later pivot and become massive rate cuts at some point in the future like we saw shortly after the 2008 housing bubble burst .
For comparison purposes about rate hikes , the Fed increased rates 17 times between June 2004 and June 2006 while pushing rates from 1 % to 5.25 % over 24 months while much smaller rate hikes that were closer to . 25 % at a time . This was the catalyst for the housing bubble burst later as so many adjustable rate optionlike pay ARM mortgages and HELOCs doubled or tripled in monthly payment amounts .
Between the 1st quarter of 2022 and the 1st quarter of 2023 , we ’ re on pace to increase rates 4.25 % just like during the 2004 to 2006 era while doing it in about half the time ( 12 months instead of 24 months ).
As of July 2022 , approximately 80 % of all open residential mortgages nationwide were priced at a fixed 4 % rate or lower as per CoreLogic . Approximately 40 % of all U . S . residential mortgages were financed or refinanced near peak lows in 2020 or 2021 .
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