The month of September, fall is in the air, Labor Day, kids go back to school, snowbirds making plans, we begin to assess, plan for the year ahead.  We tend to plan now so that we are settled in for the holidays.

Remembering family trips, the kids in the car, 5 minutes out and the refrain … “Are we there yet?”.   So, are we there yet?  Are we at the top of the market?  I just don’t see it.  It would require job losses.  We have just the opposite.  Employers can’t fill the openings they have.  Wages are rising. 

The Great Recession was facilitated by easy credit and no doc verification loans.  Buyers were approved for mortgage loans they could ill-afford.  Today’s credit standards are rigid, but qualified buyers, who are in large supply, are obtaining fixed rate, low-cost loans.   

As a group, Millennials, inflation adjusted, are making more money than Baby Boomers did at the same age.  Coupled with historically low interest rates, they can afford and are buying bigger homes at a younger age.  This accelerates housing across the board.  Families need more space for home schooling, working from home, blended families, and aging parents. Add to the pool high earnings from the stock market, and Baby Boomers are advancing their retirement plans. 

There is a vacuous supply of homes for sale, less than 1 month.  Home prices will continue to go up.  However, I remain concerned about the pace of acceleration.  The two primary antidotes that I am keeping a watchful eye on are the supply of homes for sale and the yield on the 10-year Treasury.  If months of inventory and the yield go up, it will slow down, but not stop homes from appreciating.

July was the first month this year that months of inventory based on closed sales increased.  In July it rose from 0.5 months to 0.8 months.  In August it was 0.9 months.  Although still less than a 1-month supply of homes (4 – 6 months is considered a balanced market), July/August 2021 may be remembered as the point in time when the housing market began to correct itself towards the slow march to sustainable levels.  

Customarily (although not always – the past 2 years have been an anomaly), the yield on the 10-year Treasury has a direct nexus to mortgage interest rates. On Friday, the yield on the 10-year Treasury was 1.33%.  It has been hovering in that range since July.  At the beginning of the year the yield was under 1%.  It rose to 1.75% in March, and then began its current descent due to expectations that inflation was “transitory”.   I find the term “transitory” is another way of saying the Federal Reserve wants to maintain an “accommodative” posture for and as events may arise.  My expectation is that inflation concerns will grow, and by year’s end the yield will approach 1.75%; and, in 2022, 2 – 2.5%.  In such event, mortgage interest rates should be in the 3.5 – 4.5% range.  It would slow down the rate of appreciation to sustainable levels, but not stop it.