The Week in Review: September 11, 2023
Rebounding Home Prices
According to Freddie Mac's weekly mortgage survey, mortgage rates soared last year, rising from nearly 3% for a 30-year fixed-rate mortgage to as high as 7.08%.
Predictably, housing sales fell sharply last year, and there were plenty of forecasts predicting a significant drop in home prices.
But something curious and interesting happened. Not only did prices not collapse as they did in the late 2000s, but home prices have recently moved higher.
Take a moment to review the graphic below. The S&P CoreLogic Case-Shiller 20-City Home Price Index measures housing prices in 20 large metropolitan areas.
Between June 2022 and January 2023, the index declined a modest 6.8%. Since the beginning of the year, prices have turned around.
Why didn’t prices fall further? Why have prices recently rebounded, even as mortgage rates remain high?
There aren’t enough homes for sale, according to the National Association of Realtors. Homeowners who refinanced at record-low rates are staying put rather than buying a new home and saddling themselves with an expensive mortgage.
In addition, much better underwriting standards that followed the financial crisis have helped keep foreclosures low, which also limits the supply.
Mortgage rates did approach 6% earlier in the year, helping to support prices and limit the decline in sales, but rates are back above 7%, according to Freddie Mac.
That may slow sales in what is typically a seasonally slow fall period. But a sharp drop in housing prices this year has yet to materialize.
Market Summary
TWO FOR THE ROAD
Only 11% of U.S. household debt has an adjustable interest rate. That means many Americans are locked into existing fixed-rate mortgages/auto loans/student loans and have not been impacted by the Fed’s 11 rate hikes. - The Wall Street Journal, July 27, 2023
“When you combine ignorance with leverage, you get some pretty interesting results.”- Warren Buffet
Please do not hesitate to contact me if you have any questions or concerns.
Stordahl Capital Management, Inc is a Registered Investment Adviser. This commentary is solely for informational purposes and reflects the personal opinions, viewpoints, and analyses of Stordahl Capital Management, Inc. and should not be regarded as a description of advisory services or performance returns of any SCM Clients. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Advisory services are only offered to clients or prospective clients where Stordahl Capital Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Stordahl Capital Management unless a client service agreement is in place. Stordahl Capital Management, Inc provides links for your convenience to websites produced by other providers or industry-related material. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third-party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third-party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax, or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.