When Predicting a Housing Slowdown, Inventory Is Key
Housing experts are patiently awaiting a market slowdown as mortgage rates soar to new highs and buyers rethink their purchasing decisions, but according to the CalculatedRisk newsletter, the trajectory of home price growth is dependent on housing inventory. While months-of-supply is still at a historical low, the Case-Shiller National Index has posted small but steady gains since March, and that trend could continue in a cooling market.
As of June 24, housing inventory surpassed the 2021 peak with a total of 444 thousand units compared to 437 thousand in September 2021. Inventory is expected to exceed 2020 rates by Q3 2022, while levels of supply in 2023 could return to averages not seen since 2019, says Bill McBride.
In 2019, when several commentators were bearish on housing, I pointed out there was no sharp increase in housing inventory (like in 2005), and that was one of the reasons I remained optimistic on housing and the economy (correctly!).
And the sharp decline in inventory during the pandemic (green arrow) was an indicator that price appreciation would increase. Inventory declined due to a combination of potential sellers keeping their properties off the market during a pandemic, and a pickup in buying due to record low mortgage rates, a move away from multi-family rentals and strong second home buying (to escape the high-density cities). And at the same time, demographics were favorable for home buying (a large cohort has moved into the peak home buying years).