Last month saw a big jump the single family median price per square
Here’s how it looks on the graphs — a monthly move comparable to
the height of last year’s frenzy.
However, now check out the Case-Shiller index (smoothed over 3
months, and much more accurate because it measures repeat same-home
sales). The frenzy early last year looked a lot steadier than the
charts above. It just shows that there can be a lot of noise in the
monthly price-per-square-foot data.
Anyway. The pieces were in place for a price jump. The rise in
mortgage rates might have scared people into buying (I’ve heard it
suggested by people smarter than me that this is a typical reaction
when rates start to rise, but I have not verified this). But the
main thing is that there is just no inventory. Last month hit an all
…as well as an all-time low in months of inventory:
Per my favorite graph, months of inventory is a good predictor of
price changes in the short term. (I like to occasionally point out
that this graph is inspired by Bill McBride aka Calculated Risk. On
that note, Bill has recently started writing a Substack
on housing, and it’s as good as you’d expect). Back to the
graph: I had theorized last year that the market was “digesting” the
spring overshoot, hence flat-ish prices despite very low inventory.
I guess it’s done digesting!
Side note: the gap between nominal and real price changes is…
well, it’s what we’d expect (there is an ~8% difference) but it’s
quite striking visually:
So: inventory super low and prices just jumped after a period of
relative (to last spring) quiescence. There are actually some real
risks to housing. The main one can be seen above — headline
inflation is at 7.9%, core is at 6.4%, and geopolitial events
just threw another log on that inflationary fire. Can mortgage rates
stay this low, and — given the very high prices — how much of a
rate rise could housing withstand before prices turned down? A
second, probably less serious risk comes from other markets. I am of
the view that there is an outright bubble in US growth stocks, and
that bubble money (from this crypto, and generally spendy markets
even outside the bubble stuff) has been a boost to housing. I’m also
of the view that the bubble may be starting to burst. Which
would reverse the positive wealth effect that everyone’s enjoyed for
years here. It’s hard to quantify how much of a risk that is, but I
think it’s, like, higher than zero.
But these are longer-term concerns. As of now, there is nothing for
sale, and still plenty of people who want to buy, so prices are on
the rise again.
A few yearly graphs below: