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Interest rates hit 5 percent, here’s what it means for investors

Interest rates hit 5 percent, here's what it means for investors
by Brad Cartier, posted in Newsletter

Mortgage rates have hit the 5% threshold, the highest seen since 2011. According to Realtor Magazine, “since the beginning of the year, mortgage rates have jumped by 1.8 percentage points and added about $400 to the average monthly mortgage payment for a median-priced home.” The National Association of Realtors (NAR) estimates that this interest rate rise will price approximately 16 million households out of the housing market this year alone.

30 year rate jumps to 5, highest since 2011 - FED

Source: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis, April 18, 2022.

Logan Mohtashami of Housing Wire (subscription required) reports that higher rates will likely serve to achieve the following:

  • Cool down housing prices
  • Increase days on market
  • Decrease purchase applications year over year

Ultimately, Mohtashami believes that a cooling housing market through higher rates will serve to balance the craziness of most current markets. “A balanced housing market is the best housing market.”

Matt Grossman of The Wall Street Journal reports on rising mortgage rates, stating that the current three-month rate increases are the fastest on record since 1987.

“Now, bankers and economists say that pricier mortgages are cooling the market. The Mortgage Bankers Association’s index tracking the volume of loan applications for home buying was down 6% this week from a year earlier…Wells Fargo, which issued more mortgages than any other U.S. bank in 2021, said Thursday that mortgage originations fell 27% from a year ago. JPMorgan Chase, another big home lender, reported Wednesday that its mortgage originations dropped 37%.”

Tim Ellis reports on Redfin data that shows the early signs of a cooling in the market, with high interest rates and limited supply leading to a seasonally adjusted home sales drop of 4% in March.

With interest rates on the rise, you may be thinking about buying or refinancing a rental property. Stessa makes it easy to check current rates from experienced lenders.

Feeder cities

In a new report from Storage Cafe on migration patterns, data shows that millennials are the generation most on the move across the US, and the premier destinations are smaller cities. For instance, 72% of the renters that swapped New York City for Jersey City are millennials, and former ‘flyover country’ is becoming much more sought after. Here are the top 20 cities for net inward migration in 2021.

Top cities for net migration - StorageCafe

Source: Storage Cafe (Accessed April 19, 2022)

“Communities a few miles out from the centers of metropolitan areas — and acting as ‘feeder’ cities, as their residents often commute — experienced some of the highest influxes of renters in relation to their population numbers.”

Here are the top 10 states with the most inbound versus outbound migration, according to the above report.

Inbound vs outbound migration - Storage Cafe

Source: Storage Cafe (March 2022)

In reporting on the above data, Lynn Pollack of Globe St comments that 11% of all renters who moved out of state in 2021 chose Texas as their moving destination (8.6% were to Florida). Rental applications also increased 10% in 2021 from 2020 and showed a growing interest in smaller rental markets nationally.

Given the above trend of higher interest rates, expect the pool of renters to continue to grow well into 2022.


The volatility in lumber prices continues, but this time it’s on the downside, adding a welcome decrease in material price pressure for the construction industry. Madison’s Lumber Reporter reports on Canadian Forest Industries (CFI) that the price for benchmark lumber was down 8% week-over-over per thousand board foot, and down another 6% from a month ago.

Volatility of lumber - Madison

Source: Madison’s Lumber Reporter (April 2022)

Zijia Song of Bloomberg reports that “Lumber prices are slipping to levels seen four months ago as soaring inflation curbs the appeal of do-it-yourself renovators to take on costly new home-improvement projects.” Indeed, the DIY sector accounts for about 40% of lumber sales, which has taken a huge hit over the past few months. Producers are also sitting on high levels of inventory due to transportation supply issues and rail car shortages.

Lumber Volatility in US - Bloomberg

Source: Bloomberg (April 2022)

Despite the above price decreases, lumber is still sitting at roughly double what it was pre-pandemic. This will give builders access to more wood for construction, however other materials shortages such as windows, doors, and steel products continue to be headwinds for the construction industry.

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