The Real Estate Market is Rather Similar to the Pre-Covid Market
Just with fewer sales and less inventory
As I have repeatedly said, the real estate market has stayed relatively strong despite interest rates more than doubling because most home buyers have low rates and fixed mortgages and thereby no reason to sell. Why lose your 3 percent mortgage by selling just to buy another place with a 7 percent mortgage?
While the market has certainly softened, it’s softened to something that looks rather similar to what we had prior to Covid… just with less of everything. Or to be more specific, with less sales and less inventory.
What really matters for price is not the number of sales or the level of inventory in isolation, however, but their relation to each other. As Bill McBride notes, “Historically nominal prices declined when months-of-supply approached 6 months - and that is unlikely this year - but we could see months-of-supply back to 2019 levels in the next month or two.”
McBride provides the following chart showing that while sales in June, 2024 were down 27 percent from June, 2019, inventory was down 32 percent over the same time period.
In June of 2024, the months of inventory was 4.2 compared to 4.3 in June of 2019. It’s predicted to be 3.9 in October of 2024, exactly what it was in October of 2019 on the eve of Covid.
The other key thing to look at when it comes to possible price disruptions, at least in the single family market, are serious delinquencies. But Freddie Mac has those at 0.5 percent in June, 2024 and Fannie Mae at 0.48 percent.
Both are almost exactly the same as what they were in 2019 on the eve of Covid.
In other words, the comparisons to 2008 are, at least for now, incorrect. Even the comparisons to the 1970s (which I have made) appear overstated. Instead, after going crazy during the Covid era of low rates and delayed construction and then a brief dip when interest rates were jacked up, the real estate market simply returned to what it was before all that madness.
And while inflation on consumer goods has been much higher in the last few years than before Covid making the nominal appreciation on real estate look much better than it is, as long as the United States has a housing shortage, it’s highly unlikely anything serious will change in the real estate market in the near future.
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