His point of course was that yes, rates are way up, but buyers in many markets can get way more house for their money in light of all the price reductions (something we are definitely seeing in high-end Bay Area markets in particular).
And – apparently a lot of buyers realize that, as we remain super busy and inventory remains very tight! FAR TIGHTER than what we saw prior to the 2008 crisis!
Barry Habib’s MBS Highway drove this point home again today, so I am “borrowing” his data too – with full credit.
Dan Habib (also from MBS Highway) uses the below chart to illustrate what is going on.
Long story short: Sales slowed down WAY LESS than expected, despite much higher rates.
Sales were expected to drop 2.5% month over month, but instead fell only 0.4%.
Sales are down 20% year over year, but that is compared to near record numbers last year!
Dan also pointed out how tight inventory supplies remain, as we have less than a two-month supply, if you net out pending sales.
Reminder: a healthy supply of inventory is 6 months of inventory. So, we are not even close to a glut – which is necessary for a “correction” to occur.
So Why Is Inventory Still So Tight:
- No Foreclosures. We are not and will not see a wave of foreclosures to add to supply because homeowners have so much equity and because lending guidelines have been so much tighter.
- Mortgage Rate Lockdowns. I just blogged about this, as sellers are remaining in their homes and not selling because they do not want to give up their sub-3% rates.
- Household Formations Exceed Household Creations. Barry Habib addressed this yesterday, reminding us that new households are being created much faster than new units are coming available. The delta is often in excess of 500,000 units annually.
The One Glut Forming: New Homes!
In my research this morning, I did see one glut forming and that is the supply of brand new homes coming on to the market, but I am going to go out on a limb and suggest it is because many builders have become accustomed to ripping buyers’ heads off when it comes to pricing.
So, this too may be a good thing, as new homes will become more affordable. In addition, new homes are only a tiny portion of the overall housing market, particularly in established markets like much of the Bay Area and even our metro Texas markets.
FINAL NOTE: How cool would it be to finance a Porsche at 6% – only to be able to refinance it in six months at 4%? I think that is likely and I will hit that in tomorrow’s blog when I discuss the likelihood of DEFLATION in the near future.
Jay Voorhees
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
