A crash of the US housing market is 'very unlikely' even as mortgage rates surge to 14-year highs
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- A US housing market crash is "very unlikely" even as mortgage rates surge, investment manager Louis Navellier said.
- Navellier pointed to a record high in home equity as reason to believe that any drop in the housing market will be nothing like 2008.
- While demand for homes has taken a hit, supply of single family homes for sale is at multi-year lows.
The average 30-year mortgage hit a 14-year high Wednesday, but that surge won't spark a crash in the US housing market akin to anything seen in 2008, investment strategist Louis Navellier told Insider on Wednesday.
Rates for the popular 30-year fixed mortgage surged above 6% following Tuesday's hot inflation report and rising market expectations that the Federal Reserve will continue to be aggressive with its interest rate hikes.
But according to Navellier, high levels of home 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%, though with average home equity levels very high, a housing crisis is very unlikely," Navellier said.
In other words, most home owners are in the green on their purchase thanks to rising home prices over the past few years. That compares to the 2008 housing crisis when plummeting home values meant many home owners were underwater on their purchase and eager to sell.
The total average home equity per homeowner increased to a record high of $300,000 in the second-quarter, according to data from CoreLogic.
"US homeowners with mortgages (which account for roughly 63% of all properties) saw equity increase by 27.8% year-over-year, representing a collective gain of $3.6 trillion, for an average of $60,200 per borrower, since the second-quarter of 2021," CoreLogic said last week.
According to the Federal Reserve, US homeowner equity totaled $29 trillion in the second-quarter. That's a significant buffer for homeowners who might be worried about a reversal in home prices.
But home prices are not yet falling despite the reduction in demand following the year-to-date doubling of mortgage rates. That could be because supply of homes for sales remains depressed, according to data from Altos Research.
The supply of single family homes for sale fell 1% last week to 547,000, which is a jump from early summer levels but still near multi-year lows.
"There's just a remarkable dearth of new listings," Altos Research CEO Mike Simonsen said. "I expected we'd have 625,000 homes on the market now, but we only have 547,000. Currently projecting 470,000 by end of year, but that could easily be too high... Will 2023 start with fewer homes available than 2021?"
The median home price has fallen from its recent highs of about $450,000, but just barely, to $439,900, according to Altos Research.
With demand falling but not cratering, and supply of homes available for sale remaining depressed, a US housing crash remains unlikely.
"The supply of homes for sale is just too short for the market to tank hard," Simonsen concluded.