What Higher-for-Longer Rates Mean for the Housing Market

Jamie Dimon, CEO of JP Morgan Chase, has expressed concerns about the potential impact of higher-for-longer interest rates on the US economy.

This has raised questions about what this could mean for mortgage rates and the housing market. Meredith Whitney, CEO of Meredith Whitney Advisory Group, shares her insights on the topic

The Housing Market in a Higher-For-Longer Rate Environment

In a higher-for-longer-rate environment, the housing market could see some changes.

While the housing market has been resilient, with 38% of homes bought with all cash in 2023, the impact of higher rates would depend on several factors.

Downward Pressure on Housing Prices

Higher interest rates can lead to lower housing activity and drive down housing prices. However, this is happening anyway due to supply-demand dynamics.

Supply and Demand Dynamics

The housing market has been characterized by a lack of supply and more demand than supply.

However, with more supply coming into the market due to demographic shifts and financial strain among older households, the dynamics could change, leading to more supply than demand over the next 15 years.

Catalysts for Changes in the Housing Market

The catalyst for these changes could be a combination of factors, including Demographic shifts.

As baby boomers age, there will be more downsizing due to empty nesting and financial strain, leading to increased supply in the market.

Policy Changes While policy changes may not be the primary driver, they could play a role in addressing the housing affordability crisis.

Addressing the Housing Affordability Crisis

To address the housing affordability crisis, experts suggest letting home values naturally come down, which could result in a 30% move in home prices, returning to pre-COVID levels with minimal collateral damage.

This would make homes more affordable for potential buyers.

Conclusion

In summary, a higher-for-longer rate environment could lead to changes in the housing market, with more supply coming into the market due to demographic shifts and financial strain among older households.

While policy changes could play a role, the primary catalyst for these changes is likely to be the natural evolution of the housing market.