Is The U.S. Housing Market Is at the Beginning of the Most Significant Contraction Since 2006?

Mortgage rates ended the week up at 5.85%. Now the difference from 5.5% to 5.85% is itself nominal, but is it a trend? I don't have a crystal ball. Well, I do, but it does not tell me anything. Look at the end of the curve, it needs to be watched!

But these are the highest rates since 2009

Yet, but historical standards, the rates are still pretty low.

And we again have reports calling for a crash. MarketWatch amplifies the misleading headline of the deputy chief economist of Freddie Mac, a guy that should be ... professional, declaring "The U.S. Housing Market Is at the Beginning Stages of the Most Significant Contraction in Activity Since 2006."

Now, first, it's important to state that he says since 2006, yet it was not until 2008/2009 that the market really created pain for homeowners via foreclosures and reduced prices, he is comparing this to 2006 when the direction changed. So, he says this is the beginning of a major shift. The basis of this is only the fact that home loan mortgage applications have dropped by 40%. This seems as slim data, as the average home today even gets 4 offers, so a 40% drop would be instead 2-3 offers on each property. Hardly a significant move.

And, in fact, he concludes: “I don’t think that home sales are going to grind to a complete halt,” Kiefer stressed. “They’ll just slow. People will still be able to sell homes, but it may take you just a little bit longer than what it’s been.”

So, THAT'S the most significant contraction since 2006? Does not sound like it to me.

Realtor.com jumps into the fray, with a chart that makes inventory look like its skyrocketing, with new listings up over 10% from the prior week. That looks ominous!

And yet, when you look at it in context and at the actual data, the overall inventory is still at historically low levels. See here how the increase is lost when you compare overall inventories to 2020 and 2019 and 2018, and so close to last year despite last week's increase?

One of the most reliable sources of data, Black Knight, a nationwide mortgage servicing platform, clarifies that inventory is not just low. They say there are "Severe, Accelerating, Chronic Shortages in Every Market, in Every Price Range." You see their conclusion in the data when you look at the housing inventory over the last 17 years:

In addition to the data, the authors provide factors that will continue this long-term trend in inventory:
1. Increased informational efficiency - It's easier than ever to shop for and find homes;
2. Accommodating fiscal policy- Rates spent longer than ever at lower-than-ever levels.  Owners who refi'd at these rates have little incentive to give up their mortgages;
3. Remote Work - Everyone moved to the suburbs!
4. Institutional Investors - Housing has been a fashionable investment on Wall St and these institutional investors account for a significant amount of demand--especially in the lower price tiers;
5. Restrictive Zoning - Certain metros have rules that prevent higher density housing, thus increasing demand for single-family homes;
6. Supply Chain - Land, labor, and material shortages only hurt housing availability further;
7. Rooted Sellers - See number 2 above, but also consider that a starved inventory situation only creates an additional reason for sellers to stay put.
So, what to do?

If you are looking to sell, this is still the best market to sell in during my career, and you should get a great price and the flexibility to make the sale work for you. The best thing you can do to get top dollar is to remove anything you can and get rid of what can be thrown out, donated, or stored. Clean and fix what can be done by a handyman to create a great first impression, but otherwise save your money.

If you are buying, you should look for escrow fallouts, be patient when buying, and make sure to get the loan rate locked in that makes sense for your transaction.

How can I help you? Call, text, or email me.

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