Making Sense of Low Inventory and Rising Interest Rates

 The Fed has come out saying that they will be increasing interest rates from some of the lowest rates in history. I know everyone is concerned about the impact of that, but that brings us to part 2 of this picture: super low inventory.

The pressure and chaos that is this market continues to be insane and it only appears to be getting worse. It feels a little like shopping at a mall on Christmas Eve. Supply has been at 3 months or less. Normal/Even for both buyers and sellers is about 6 months. It seems that because everyone has heard about the impending increasing rates, buyers are trying to get into the market now before they need to pay more for the same money. It's the nature of human behavior to react this way to news like this but it has become the Wild Wild West out there. 

For the sake of the industry and the market though, increasing interest rates ought to slow this astronomical increase in pricing we've had. For the year of 2021, pricing for both single family homes and condos are up by over 20%. Income property on the other hand was up by less than 10%. Either way, pricing increases like this are tough to sustain. 

This brings up another concern. If we have been on such a ride, what happens after the ride is over? Everyone is always worried about recreating another housing bubble. However, what few people look at is the fact that we rarely, if ever, recreate the same financial problem. We have not recreated the depression nor have we recreated the credit crisis. For confirmation that we do not recreate this problem, we turn to our metrics: household debt, mortgage delinquencies and affordability. Check out the links below because it will show that although household debt is growing, mortgage delinquencies are decreasing and credit scores are great because people are paying their bills. This certainly doesn't draw a picture for a huge upturn in our market. 

The inflation is definitely the most challenging element in this picture, but the idea is that increasing interest rates will decrease the purchasing power and decrease demand out of buyers. It's not necessarily ideal, but maybe it's like eating vegetables. Sometimes you just gotta do it for your overall health. 

Household Debt    Bankruptcy Filings     Impact of Higher Rates