Nicole Friedman of the Wall Street Journal seems to be ignoring all home data from before 2013 in her incessant bad-mouthing of homes as investments
Posted by John Reed on
Wall Street Journal’s talk-home-values-down writer Nicole Friedman yesterday had a front page article titled “Housing Market Cools as Rates Jolt Buyers.”
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Her basic thesis is that mortgage rates at their current level of 6.65% have caused the house units sold to fall and vaguely suggests those rates also cause home values to fall.
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I just did something I never see evidence of Friedman doing: I looked at the historical record.
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“Friedman’s Law” is that mortgage interest rates at 6.65% or above cause home values to fall and home units sold to fall.
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Here is a graph of house units sold since 1963.
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https://fred.stlouisfed.org/series/HSN1FA
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And here is a graph of home prices in the Midwest since 1963.
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https://fred.stlouisfed.org/series/MSPMW
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And here is a graph of home mortgage interest rates since 1971.
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https://themortgagereports.com/61853/30-year-mortgage-rates-chart#historical
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According to “Friedman’s Law,” the first two graphs should look like twins and the third should look like the first two, only flipped upside down. The first two do not look like twins. They are quite different. And the mortgage rate graph looks nothing like an upside-down version of the first two.
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What conclusion can we draw? Nicole Friedman is a bulls*** artist who cannot be bothered to do her homework. She keeps making the mistake of thinking higher interest rates affect home values the same as they affect existing bonds. That is not the case. But wait, there’s more.
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She is saying that mortgage interest rates of 6.65% are too high, that people should not buy houses when rates are that high. Rather, they should sit out the market and wait for rates to fall to—I’m not sure what rate is low enough for her to send a “buy” signal to would-be homeowners.
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So exactly how many times in the third graph—the mortgage interest rate graph—were rates below 6.65%? The average for the entire period shown by the blue dotted line was 7.75%. So Nicole Friedman’s advice is if the rate is the average or higher rate for the last 50 years, you should wait for the rates to fall—since 1971! And even that is not low enough for her. Not only does she think 7.75% is sit out the market sidnal, so is 6.65%, and we can suspect 5% or 4% or maybe 3%.
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In other words, Nicole Friedman would have opposed you buying a home in every year from 1971 until rates fell to, say, 4%. That only happened around 2013, 2016, and 2020.
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Also, the world did not begin in 1971. My Best Practices book goes back to 1965 and 1970 regarding mortgage interest rates.
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The rates then were 5.89% and 8.56%. Not low enough for Nicole. I do not know how old she is, but I suspect in her 20s or 30s so her advice is based on America since she came of age and heard there was such a thing as a mortgage.
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The fact that rates were NEVER low enough for Nicole before 2013 is ignored because it is BN—Before Nicole was a grown-up.
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It is possible that, although people bought homes for 60 years when rates were above the point at which Nicole thinks you need to sit out the market, and are glad they did, that her talking down home buying lately from the powerful platform of the Wall Street Journal has turned Americans from a nation who bought homes when rates were above 4% and as high as 16.55% in 1981, and made money on those house investments, to a Friedman-brainwashed nation who thinks it is impossible to consider buying a home when mortgage rates are over 4%.
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The Wall Street Journal and Nicole do not want you to buy a house. They want you to buy stocks and bonds. Their reason—“high” mortgage interest rates—is utterly destroyed by a quick look at the historical mortgage rates, units sold, and median home prices. But If you only read the Wall Street Journal for investment advice of ALL kinds, you ain’t gonna learn anything about the national home mortgage, sales, and values history Before Nicole.
.
Her basic thesis is that mortgage rates at their current level of 6.65% have caused the house units sold to fall and vaguely suggests those rates also cause home values to fall.
.
I just did something I never see evidence of Friedman doing: I looked at the historical record.
.
“Friedman’s Law” is that mortgage interest rates at 6.65% or above cause home values to fall and home units sold to fall.
.
Here is a graph of house units sold since 1963.
.
https://fred.stlouisfed.org/series/HSN1FA
.
And here is a graph of home prices in the Midwest since 1963.
.
https://fred.stlouisfed.org/series/MSPMW
.
And here is a graph of home mortgage interest rates since 1971.
.
https://themortgagereports.com/61853/30-year-mortgage-rates-chart#historical
.
According to “Friedman’s Law,” the first two graphs should look like twins and the third should look like the first two, only flipped upside down. The first two do not look like twins. They are quite different. And the mortgage rate graph looks nothing like an upside-down version of the first two.
.
What conclusion can we draw? Nicole Friedman is a bulls*** artist who cannot be bothered to do her homework. She keeps making the mistake of thinking higher interest rates affect home values the same as they affect existing bonds. That is not the case. But wait, there’s more.
.
She is saying that mortgage interest rates of 6.65% are too high, that people should not buy houses when rates are that high. Rather, they should sit out the market and wait for rates to fall to—I’m not sure what rate is low enough for her to send a “buy” signal to would-be homeowners.
.
So exactly how many times in the third graph—the mortgage interest rate graph—were rates below 6.65%? The average for the entire period shown by the blue dotted line was 7.75%. So Nicole Friedman’s advice is if the rate is the average or higher rate for the last 50 years, you should wait for the rates to fall—since 1971! And even that is not low enough for her. Not only does she think 7.75% is sit out the market sidnal, so is 6.65%, and we can suspect 5% or 4% or maybe 3%.
.
In other words, Nicole Friedman would have opposed you buying a home in every year from 1971 until rates fell to, say, 4%. That only happened around 2013, 2016, and 2020.
.
Also, the world did not begin in 1971. My Best Practices book goes back to 1965 and 1970 regarding mortgage interest rates.
.
.
The fact that rates were NEVER low enough for Nicole before 2013 is ignored because it is BN—Before Nicole was a grown-up.
.
It is possible that, although people bought homes for 60 years when rates were above the point at which Nicole thinks you need to sit out the market, and are glad they did, that her talking down home buying lately from the powerful platform of the Wall Street Journal has turned Americans from a nation who bought homes when rates were above 4% and as high as 16.55% in 1981, and made money on those house investments, to a Friedman-brainwashed nation who thinks it is impossible to consider buying a home when mortgage rates are over 4%.
.
The Wall Street Journal and Nicole do not want you to buy a house. They want you to buy stocks and bonds. Their reason—“high” mortgage interest rates—is utterly destroyed by a quick look at the historical mortgage rates, units sold, and median home prices. But If you only read the Wall Street Journal for investment advice of ALL kinds, you ain’t gonna learn anything about the national home mortgage, sales, and values history Before Nicole.
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2 comments
Re Gallagher comment:
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Market interest rates rising makes fixed rate bond prices fall so that a buyer of an existing bond can get the current going market yield.
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Do home prices respond the same? In part, yes. All capital assets—stuff that is so expensive that you generally need to borrow to buy it—are adversely affected in value when interest rates rise. However, a home is far more complex and influenced by far more variables.
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Not every home buyer gets a mortgage and not everyone gets an 80% or higher of value mortgage. Plus, inflation does nothing but hurt an asset denominated in USD like a bond. But a home is NOT denominated in USD. So its value is being raised by the same force—inflation—that is lowering bond values. And in a home mortgage where you live in the home, you are not the bond owner. The mortgage lender is. His pain from inflation is your profit in the form of a real (after adjustment for inflation) increase in your equity and therefore net worth.
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Also, your after tax return is different from a home than owning a bond because the pertinent laws are different.
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When I studied civil engineering, we learned that many vectors affect a structure. In a diagram, each vector was represented by an arrow pointing in its direction. The gravity vector pointed straight down, the strength of the structure member, straight up. Wind load was a sideways vector. Snow and ice load on the roof or bridge deck pointed downward. Potential earthquake force was a sideways arrow.
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With bonds, there are only two vectors: interest rate movement and default probability. With a mortgaged home, there are dozens, of which before-inflation and before-tax mortgage interest rates are only two.
I enjoyed your referenced graphs and column related to interest rates and home buying. I believe the NY Times was extrapolating a generally true concept (I am more likely to buy a value with a lower than higher interest rate) and thinking it has a very high impact (say 89% of decision) when it may very well be an inconsequential (1 % ?) part of the decision process. I was surprised what the graphs showed but not surprised that looking at actual data often changes my seat of the pants over confidant opinions. Thanks for the adult perspective. Regards Tom G.