NEW YORK–The rapid pace of rate hikes by the Fed and the accompanying increase in mortgage rates has led to an “interesting statistical anomaly” in the housing market, according to a new report.
As CUToday.info has reported, sales of new homes recently came in at the weakest monthly level since 2018, while purchase applications are down 20% year-on-year, and so on, according to the Mortgage Bankers Association.
“But the rapid pace of rate hikes has also resulted in an interesting statistical anomaly,” reported Bloomberg. “Months of supply — or the number of months it would take for the existing inventory of homes on the market to sell at the current sales pace — has jumped to 4.1 from a record low of just 2.1 back in January of this year.”
Bloomberg quoted Morgan Stanley strategist James Egan as saying the market has rarely seen an increase of this size.
‘It’s Math’
“To some extent, the jump in inventory is to be expected. It’s math. As sales volume falls while inventories rise, months of supply naturally increases,” Bloomberg reported. “But such a jump is intuitively striking, and the key question for housing-watchers is whether the absolute level of inventory — which is still low by many measures, even as homebuilders have ramped up construction since last year — will turn out to be more important than its rate of change. A housing market that is structurally undersupplied is going to be a lot less vulnerable to fewer sales.”
‘Rarely Seen’
Added Egan in comments to Bloomberg, “Months of supply has rarely increased as quickly as it has over the past six months. While we have a limited sample size of this kind of volatility, the size of this increase is normally associated with falling home prices 12 months forward. In fact, in the 34 instances in which months of supply increased by more than one month over any six-month period, [year-on-year Home Price Appreciation] was negative 12 months forward 88% of the time. While there have only been nine instances where months of supply have increased by more than two over a six-month period, home prices were always lower 12 months later.”
Morgan Stanley forecast for home prices this year calls for a 9% increase, followed by a more moderate 3% in 2023.
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