Year End Housing Inventory: From Frying Pan to Fire
On Friday of last week, the National Association of Realtors® (NAR) released the year-end inventory figures for December, and they will literally do nothing to change the crisis of under-supply that we are currently experiencing. In fact, the total number has fallen to 970,000 which represents a decline from November of approximately 13%. NAR Chief Economist Lawrence Yun states that despite this near historically low inventory figure, there's good news because it's up 10% over December of the prior year, which may be true, but that statement is nothing more than a red herring.
As inflation began to run rampant in the middle of 2021 and has not retreated in any significant way since, the Federal Reserve (The Fed) began raising interest rates in what can only be described as a "breakneck pace" as a knee-jerk reaction to not having acted sooner, and in smaller increments. As we've said before here at PropertyGuerilla.com, closing the barn door after the horse has escaped is not sound practice, but it's exactly what happened here. As part of these raises, The Fed was hoping for a housing reset as a result, but what they've created is something worse. The previous 2 years of price escalations represented gains that normally may have taken a decade or two to realize, and because interest rates were historically low and everyone was terrified of a virus and buying was literally unprecedented in many ways, no one really noticed. Fast forward to December of 2022 after 7 brutal months that included 7 interest rate hikes that raised mortgage interest rates over 100% in one calendar year for the first time in 50 years.
The result
has quickly become, as we stated earlier, a crisis of under-supply because
would-be Sellers simply put on the brakes an stopped listing and Builders had
stopped building several months before. The absence of those two key
factors, and the fact that this low inventory is keeping prices stubbornly
high, and interest rates are still about double what they were in January of 2022
has become the "Perfect Storm". As interest rates trickle down (an we do
mean trickle) let's hope Builder sentiment changes and Sellers begin to list
again, otherwise 2023 could remain as challenging as the latter half of
2022.