Prices were down a (very) wee bit last month:
Inventory started to build:
Pending sales hung in there from the prior month, but are still
lower than a couple months ago. It’s probably the case that many
people going pending last month still had lower rates locked in.
Putting them together, months of inventory rose quite a lot in
percent terms, but that’s coming off a very low base.
This longer-term chart of months of inventory puts the increase in
So we’re still at very low inventory levels that have historically
implied higher near-term prices. I continue to question whether that
can be sustained. Here is the absolutely nutty rise in monthly
payments over the past year:
Just think about this. A year ago, people were already stretching to
buy houses here. Just 12 months later, for any given house, the
monthly payment required to buy it has gone up 65%! Or 52% in
inflation adjusted terms… assuming the buyer’s income kept up with
inflation (which, on average, is not the case).
These are just astounding numbers and it’s hard to see how this
doesn’t seriously impact demand at this price level, once the higher
rates are fully priced in (rate locks expired etc).
Zooming out, the inflation-adjusted monthly payment is now
comfortably above the bubble peak:
Meanwhile the Federal Reserve appears to be actively targeting a
decline in home prices (or at least valuations). Here’s Jay Powell
from last week’s press conference, emphasis mine:
“I would say if you’re a homebuyer, or a young person looking to buy
a home, you need a bit of a reset. We need to get back to a place
where supply and demand are back together. And where inflation is
down low again and mortgage rates are low again. So this will be a
process whereby ideally we do our work in a way that the
housing market settles in a new place and housing
availability and credit availability are at appropriate
In all, my view is that something probably has to give here: if
rates don’t come down, valuations likely will. (Or some combination
of the two).
If that forecast is right, it still leaves open a lot of questions:
Will it be rates, valuations, or both? If valuations decline, how
much of that will be from nominal price declines vs. incomes
catching up to prices? Over what timeline will this all happen? Etc.
I don’t pretend to know the answer to any of these. But I do have a
pretty strong feeling that this current combination of valuations
and mortgage rates cannot be sustained.
Assorted graphs below.