Just a Few Quick Items...

Good morning. Last week I said I’d be buying back some time by taking a couple of weeks off from posting these blogs. I’m sort of still doing that but wanted to share a few things with you anyway.

First, the Schwab “integration” is off to a good start. I can see everything, can do transactions and so forth, and you should have access available too if you’re interested in logging in directly to the Schwab site (assuming, of course, that I’m managing your investments and/or your accounts were at TD). Let me know of any questions.

Second and unrelated, I’m posting some snippets below from my research partners at Bespoke Investment Group about mortgage rates and the real estate market. This gets to the suggestion that the Fed has “killed” the housing market with higher interest rates. They haven’t killed it because there are lots of reasons why people move, but the squeeze is on.

Third and completely unrelated, I’m taking a moment to comment on the death of Jimmy Buffett last week. I found his “Gulf and Western” style later in life and memorized every word and note on Songs You Know by Heart. I didn’t grow up on it, but my kids did and suffered through me murdering the songs on accoustic guitar. And I wore out my digital copies of his 2020 albums, Songs You Don’t Know by Heart and Life on the Flip Side. Say what you will about his “island escapism” style or his… whatever, but I think those last two albums were just about perfect. Anyway, here’s a Tuesday morning toast to JB. He's most certainly resting in peace.

Snippets from Bespoke…

- The national average of a 30-year fixed rate mortgage is at the highest level in over 20 years.

- Rates for new mortgages are especially elevated relative to rates on already outstanding mortgages, and that creates no incentive for existing homeowners to enter the housing market or put their home up for sale.

[Last week] the Bureau of Economic Analysis revised data on the effective mortgage rate on outstanding mortgage debt through the second quarter. Whereas the aforementioned 7.23% mortgage rate is for anyone looking to enter into a new 30-year mortgage today, this effective rate can be thought of as the average rate being paid by existing borrowers.

While current mortgage rates are higher than any point of the past two decades, they are even more elevated relative to the effective rate on outstanding mortgages. As shown below, the spread between the current national average and this effective rate on outstanding mortgage debt is slightly off the highs from late last year, however, that spread remains at some of the widest levels since the late 1970s/early 1980s. Admittedly, the two rates are not perfect comparisons given that outstanding debt likely looks very different (with regards to borrower profiles, terms, etc.) from that of a new 30-year fixed rate mortgage, but the general point is the same: for the bulk of those who already have a mortgage, a new mortgage at current rates would incur significantly higher costs. That gives them little reason to enter the housing market, and thus, is part of the reason for the dearth in housing inventories.

[Comparing new mortgage payments to existing mortgages…] the spread is even more blown out and has far surpassed readings from the late 1970s/early 1980s, and the incentive for an existing home/mortgage owner to move looks even worse. Based on the current median price of an existing home and the current average 30 year fixed mortgage rate, the typical payment comes up to a little over $2,000 per month. Substituting that current 30 year rate with the effective rate on outstanding mortgage debt, the payment would be much lower at just $1,421 per month!

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