Things in the mortgage and real estate markets have not changed much in the past week or so. Rates are basically flat, affordability is down because inventory is low, and prices are continuing to rise because of the demand created by the remarkably low inventory — especially when it comes to entry level homes. Much of what you read about either the mortgage or real estate markets is analysis using historical indicators to predict some return to normalcy. But there is very little written about adapting to what may be a transition to a new normal.
Let’s consider some things that exist today, that were not factors when things were “normal” — those things that are going to be with us for at least the near term, blocking that return to normalcy. And one big thing that we accepted as normal.
In many instances, grandma and grandpa’s home amounted to the majority of the generational wealth that was passed on in middle class. Mom and dad could use that modest inheritance to finance the future. Maybe it paid off their house or financed a college education.
Grandma and grandpa owning a home free and clear, however, is less and less common these days.
Even having any substantial equity is becoming more and more rare. That means mom and dad and the grandkids are left to fend for themselves. Not a terrible proposition, but is does mean that homes and educations need to be paid for and do impact future plans. Trading up or getting married and buying right out of college both don’t seem to be practical.
One thing that we considered — or at least accepted as normal — were declining rates. For decades since the ’80’s, declining interest rates helped maintain what was thought to be normal. As economic factors weighed on the economy, rates could go down as necessary to compensate. Lower rates permitted people to trade up or manage to finance that home with some marginal student loan debt as home prices increased.
When maintaining “normalcy” relies heavily on declining interest rates, there comes a point where that is not sustainable. We reached that point and may need to stop waiting for normal to return. We may not even know what normal is at this point and need to be willing to adapt to be successful.