HOUSING WHIPLASH CONT.

monthly payment of $1,612 per month. At 6.15%, that same monthly payment moves to $2,437 per month. Over the life of the loan, that is a difference of roughly $297,000.

The FRB has signaled that they are not necessarily through hiking interest rates in 2023, though inflation has almost certainly begun to turn a corner. It is entirely likely there may be one or two more 25 basis point rate hikes in early 2023.

Keep in mind that from 1980 to 2020, the average interest rate was 7.8%. From 2000 through 2020 it was 5.9%. It was only following the housing collapse and financial crisis that this average moved below the 5.0% level. From 2011 through 2020 it averaged 3.9%.

The real question going forward is whether we will return to the historically low rates of the past decade or whether that proves to be an aberration as we move back closer towards historical norms. This will have a profound impact on housing affordability and the US home ownership rate.

From the 1960s through 2000, roughly 65% of Americans owned their own home. The home ownership rate peaked in 2004 at 69.2%. Unfortunately, this was primarily due to toxic loan product (adjustable-rate loans, stated income

US Home Ownership Rate

loans, etc.) that would later lead to the housing collapse and the ensuing Great Financial Crisis. The home ownership rate fell to just 62.9% by June 2016 but had been climbing since. It surged in the pandemic housing boom to 67.9% but is already falling.

We anticipate this number to continue to drop in the immediate and, likely, near future. A shortage of new housing will mean home prices will likely not crash in most markets, though they will continue to move downward because of the cost of borrowing. This will particularly challenge first time buyers looking to make the jump from renter to owner. It will bolster multifamily landlords.