Housing Market Conundrum

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Housing Market Conundrum

One potential positive impact of the current economy will be housing prices stabilizing and maybe even decreasing. However, housing prices continue to increase as interest rates and inflation rise and the perception of the economy is uncertain. Will this change? Are there signs that a more rational market is emerging?

The monthly cost of buying a home has increased significantly with the increase in 30 year mortgage rates from 3.3% at the beginning of 2022 to 5.3% on 5/23. For the past 10 years or more, the most popular mortgage product has been a 30 year fixed mortgage because prevailing interest rates have been so low. Many of you who own homes locked in the low rates especially since Covid in March 2020. When will the housing market be impacted by these recent increased rates?

When we help clients look at the cost of buying a home we have them “act as if” they already were paying the cost of their “pretend” mortgage, or increased amount to their total monthly housing costs, to eviscerially feel how having a mortgage will impact their lifestyle spending and monthly cash flow. Most clients do not want to be “house poor.”

So how are home prices trending today? There are some indications that we might have hit the peak of home prices for the time being. Inventory of homes is increasing because of decreased affordability with higher interest rates and inflation. Of course, real estate is local so the SF Bay area has not worked like the rest of America. Our market has been pretty buoyant and general declines from recessions have had a muted, although still very real, impact on local housing prices. Keep an eye out for inventory increases for an early sign of home price stability and maybe even a decline.



For the past two weeks, as equity markets have sold off with the S&P500 entering a bear market, 20% down from peak, the bond market has returned to its more traditional role of negative correlation. Negative correlation means as equity markets decline, interest rates decline and bond prices increase. This provides some haven for investors as interest rates are higher and, although not close to the current inflation rate, provide much better returns and more stable market prices than the past two years.

The past two weeks have raised some doubts in regard to consumer spending as major retailers such as Target and Walmart reported earnings that were squeezed by price/labor increases, reflecting inflation numbers and questions about continued consumer spending.

We are not smart enough to time markets, and our outlook is cautious going forward. We have more interest rate increases coming from the Federal Reserve. This means higher short-term interest rates which will impact the yield curve. This month 1-month through 6-month US Treasury rates have increased. Further out on the yield curve, rates have fallen. An increase in the Fed Funds rate of 0.50% at the next two Fed meetings in June and July could change the yield curve. Markets are well aware of the expected Fed Funds increase in yield and the bond market has not priced in these increases. We will continue to monitor the yield curve through these planned increases.



  • The confidence the bond market has in future US economic strength is not high.
  • Bearish investor sentiment remains high in the equity markets but off its high.


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