Low housing supply is sustaining elevated home prices across the nation even as mortgage rates creep to new highs, and a highly-anticipated early 2023 inventory spike could cause an unbalanced housing scale to finally tip.
At the current sales pace, it would take 3.3 months to work through housing supply, according to Bloomberg, but if the inventory-to-sales ratio spikes in January and February, the trajectory of housing prices will depend on the pace of inflation and the Fed’s prospective change in monetary policy.
If inflation continues to moderate, that could lead financial markets to anticipate a change in monetary policy later next year. That would set the stage for Treasury bonds to rally and a corresponding drop in mortgage rates. It’s a race against the clock, though, and you’d have to hope for a near-perfect run of inflation data to assuage jittery policymakers and financial market participants and bring 30-year mortgages back down below, say, 6%. Even then, it’s unlikely that rates will look anywhere near as attractive as the loans that prevailed for most of the past decade, and they might not be enough to keep the market’s delicate equilibrium intact and prices afloat.