100%

There really aren’t that many sure things in life, but one of them is Isaac Newton’s third law of motion, which states that “for every action there is an equal and opposite reaction.”

Happens every time. 100%.

Now let me state my corollary to that law: Every time interest rates, and mortgage rates in particular, increase substantially housing starts decrease significantly.

Happens every time. 100%.

But could it be different this time?

Apparently maybe, because even though mortgage rates, driven by the Fed’s decision to push the Federal funds rate from .25% a year ago to 4.75% today, have almost doubled to 7% during that time, housing starts have decreased but not plunged into free fall. That’s so even though mortgage rates haven’t been that high in 20 years. Yes, starts have declined by 30% or so in the last year but during the last housing recession they cratered, dropping almost 75%.

There are other signs as well that the housing market is holding its own. For example:

• In most housing markets, housing prices are holding up, declining only slightly. One respected housing economist is even forecasting an across the board 1% increase in housing prices by year end;
• The construction market actually added jobs in January of this year;
• At this point there’s only a 3-month supply of homes for sale, which is about half the number considered “normal” and a far cry from the 18-month supply of unsold homes that buried the housing market in 2018;
• NAHB’s builder sentiment survey recently improved after 11 consecutive months of decline.

So, maybe all of that not so bad news is why I’m starting to hear whispers about a so-called soft landing for housing. But I heard rumors like that  in 2007, and less than a year later housing activity plunged to levels so low as to be almost unimaginable.

So I find myself less than 100% sure that I know where the market’s headed, never mind my assertion that rapidly rising mortgage rates are a sure sign of calamity.

So help me out. Complete the short survey below, and let me know how you see the market and your business doing this year. We’ll publish the results in this newsletter next week.

The survey