Everybody knows that mortgage rates are by far the dominant force in determining home prices. The steep Fed-induced drop that sent the 30-year from nearly 5% in the fall of 2018 to under 3% from late 2020 to the close of 2021 ignited never-before-seen gains of nearly 33% in just two years. Likewise, Central Bank's tightening campaign that's almost tripled rates to 7.3% as of November 15 halted the boom and started a brief slide that lasted from June to December of last year. Since then, prices have rebounded modestly but are still just a point or two higher than at the peak. After years of beating inflation by a huge margin, the value of capes, colonials and condos overall have waxed a lot more slowly than the CPI measuring the prices of all goods and services that Americans buy.
While changes in mortgage rates—and we've seen gigantic ones in both directions in the past few years—guide housing values nationwide, they don't explain the huge divergence in the performance of different metros in both the boom and flattening periods. Home loans are a national market. Folks buying a new or existing dwelling pay roughly the same monthly nut for each $1000 they borrow from coast to coast, since virtually everyone but the wealthy get their mortgages from one of the three programs that dominate single family home lending, Fannie Mae, Freddie Mac, and the FHA. So all homeowners get approximately the same lift or hit from a drop or rise in the costs of that U.S. institution, the benchmark 30-year home loan.
