In 2020, I wrote a quick overview of the U.S. real estate market with charts to show how the pandemic was affecting the housing market.
Now that a few years have passed, it’s time to update these charts.
The monthly supply of existing homes measures the number of months it would take to sell all the homes on the market at the current sales pace.
They are trending significantly higher from the lows of late 2021/early 2022. This is good news for a healthy housing market.
The pandemic has created a surge in demand for housing, leading to a mini-boom in new home construction.
The good times continued, but rising mortgage rates quickly put an end to the trend. As you can see, building permits and housing starts are falling just as fast as they increased.
The rise in mortgage interest rates is clear when you look at the graph.
It’s hard to believe that there was a housing bubble in the first decade of this century with mortgage rates exceeding 6%. The big difference is that interest rates were falling from high levels back then, whereas today mortgage rates are at historic lows that are fresh in anyone’s memory.
A small boom in new home construction, combined with price cuts by homebuilders, is helping to make up for the decline in existing home inventory.
Unfortunately, this situation won’t last long as housing starts data is rolling over, so the existing housing market will have to make up the shortfall.
Home prices continue to reach new highs.
After all, homeownership was probably the best hedge against inflation this cycle.
It’s unclear what the future holds for the housing industry.
If mortgage rates remain high, inventory will continue to rise and price appreciation will slow.
If mortgage rates fall enough, you could see a surge in demand from buyers and sellers who have previously held off on purchasing, but that may depend on why rates are falling.
A recession doesn’t necessarily devastate the housing market as expected.
It is not a given that prices will plummet during the next economic contraction.
Higher mortgage rates have helped cushion the housing market from the pandemic’s turmoil, but they could cause more problems in the future as homebuilders slow down new construction.
Lower mortgage rates give borrowers peace of mind and encourage more homebuilding, but they could also lead to increased demand in an already supply-constrained market.
This situation won’t last forever, as something unexpected will inevitably happen at some point, but for now, the housing market is in a “try and fail” state.
References:
Who is buying a home in this market?
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