The ‘Sammy Hagar’ theory of economics

“The problem with the rate issue is that they’ve gone up too much, too fast,” he said. “When the interest rate jumps way up, you’ve got downward pressure on prices, but prices haven’t come down to meet the speed in which the rate has increased. We have to get to market equilibrium. On a loan product that’s 45% you qualify at 5%, but you don’t qualify at 7%. How do we make that work? Well, if we can’t change the 7% and you can’t buy the rate down, then we’ve got to pull the price down to keep that debt-to-income ratio the same. Right now, we’re sitting around and waiting for the market to equalize itself.”

That may take a little longer, judging by Black Knight’s data, which also revealed that although prices were off their peaks in 97 of the 100 largest US markets, they were still roughly 40% higher than they were in 2019, before the COVID pandemic.

Asked how much further house prices could fall, Tatom said: “I have a feeling that they’ll come down to anywhere from 15% to 20%, probably within the next 10 months.”

Black Knight’s VP, Andy Walden, echoed that view and this week he said the market would be “nearing a bottom” in the next two quarters before flattening out, ominously adding that housing prices “are not built for a 7% environment”.

Tatom’s own experience with realtors is quite revealing.