Travis and Kate Glenn-Rhodes want a house near Tampa, Fla. They're in their mid-30s, with a budget of $350,000 to $400,000. When mortgage rates neared 7.5%, they hit pause. “We stopped looking right at that point,” Travis told the Journal. To get the payment they planned, they'd now need $40,000 more down. That would leave too little savings for an emergency, Travis felt.
Other buyers barely notice rates. Nicholas G. Miller's Property Report in Wednesday's Journal calls it a house divided. First American Data and Analytics found the top of the market beating starter homes in 33 of the top 50 metro areas. Luxury prices there are climbing faster or dropping less. Around Tampa, homes under $305,000 were down 4.1% in August from a year earlier. Prices at the top, above $471,833, still edged up 0.4%.
Builders see the same split. Toll Brothers (TOL), a luxury builder, said 25% of its buyers pay cash. Its average sale price rose to $996,000 from $974,000. Lennar (LEN), an entry-level builder, slipped to $372,000 from $383,000. Builders are also starting fewer homes. Housing starts fell 5.2% in September to a 1.221 million annual pace, the Commerce Department said. Economists expected 1.3 million. Pending home sales sank to their lowest since 2001, when the Realtors began tracking them.
Stocks priced for a bust
Thursday's Heard on the Street column, by Spencer Jakab, said housing stocks already price in a lot of gloom. Home Depot (HD) recently hit its lowest ratio of company value to sales since 2018, outside the Covid panic. Lennar is back to housing-bust levels. Part of the freeze is that more than 65% of borrowers have mortgages at least 2 percentage points cheaper than today's rates, Goldman Sachs estimates. That keeps many owners from moving.
Then came a little relief. On Thursday, Oct. 22, investors sold AI stocks and bought almost everything else, home builders included. Lennar rose $6.75 to $84.45, and Home Depot rose $13.59 to $327.73. In Friday's paper, Freddie Mac's 30-year average fell to 7.32% from 7.40%, its first drop in nine weeks. Rates began September at 6.71%, so the dip is small.
Our read
This is a Housing (M6) story with a Cash Flow (M5) lesson. Our read is that the Tampa couple made the right call. A house you can only reach by emptying your emergency fund is a house you can't afford yet. The cash buyers aren't a signal to chase. They play by different rules. Home Depot is held at weight in 8 books and Lennar in 1. Nothing was added, and one good day for the stocks doesn't change that.
Here's where it hits your plan. If you're house hunting, take the price you want and figure the monthly payment at 7.32%. Then see what down payment gets you to a payment you can live with. Now check what's left in your emergency fund after closing. If the cushion comes up short, the price or the timeline has to move, the same choice the Glenn-Rhodeses made. If you own a home with a low locked-in rate, write down what giving it up would cost before you list. You don't buy the umbrella once you're soaked. If you'd like us to run the payment math with you, bring the listing.