US housing: Homeowners are the hit hedge funds of the pandemic era

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The most successful hedge fund of the pandemic era is the US homeowner. Interest rates plummeting to near zero and soaring home prices have sent Americans into a frenzy of home refinancing. mortgages. These offers allowed them to cut their monthly payments or withdraw equity from their homes.

New research on the Federal Reserve Bank of New York shows that quarterly refinancing volume skyrocketed from roughly $100 billion in 2019 to $700 billion during the pandemic. More than $400 billion of aggregate principal was drawn out, according to the Federal Reserve, or $82 thousand per cash-out mortgage. However, most chose to lower their monthly payments, by an average of $220.

For most Americans, the single most valuable component of wealth is their home, typically purchased with 30-year fixed-rate mortgages at a loan of 75 percent of value. These refinancing booms happen occasionally, the researchers note, creating substantial amounts of wealth. Big winners also included retailers like Home Depot, Lowe’s and other purveyors of high-priced goods.

But as the Fed points out, interest rates have skyrocketed dramatically with benchmark mortgages going from less than 3 percent to around 7 percent, a sea change that will continue to wreak havoc on the economy.

Closed loan volumes and revenue at industry leader Rocket Companies fell more than 60 percent in 2022, year-over-year. Rocket listed its shares in 2020 at $18 and they have since dropped to about $8.

The distributional effects of these interest rate fluctuations are becoming increasingly clear. Homeowners happy with their current locations are the big winners. Home Depot noted that while 40 percent of American homes are owned outright, nearly all outstanding mortgages carry rates of 5 percent.

Not surprisingly, home sales data released Thursday revealed April volume was down 23 percent. Those eager to join the crowd of hedge funds and buy into the real estate market are caught in the cold.