very demanding And supplies run out adjacent toNo net effect on inventory, but a huge effect on sales, commissions, profits and jobs.
By wolf richter For wolf street,
Artificially depressed mortgage rates from March 2020 to March 2022 caused a significant number of homeowners to refinance, including cash-out refinancing, 30-year fixed-rate mortgages with rates of around 3% In the U.S., many of them are below 3%.
If these homeowners want to sell their home and buy a bigger house or a smaller house, or buy a house in a different location, or whatever, they have to switch from a 3% mortgage to a 6.5% mortgage, and that Don’t have one – go to the field. So they’re not selling, and they’re not buying. They have left the market.
This is bad for domestic sales, who has drownedAnd for real estate brokers who make money from each transaction, and for mortgage bankers who make money from mortgage origination, and if no transaction goes through, they don’t make any money and have to find another job.
But the 3% mortgage gel has zero net effect on inventory.
When a homeowner sells the home they live in to buy something else to live in, it has zero effect on inventory across the country overall because a homeowner who sells their home and buys another home, Adds one unit to inventory and subtracts one unit from inventory ( +1 – 1 = 0).
They only churn the market, which is good for brokers and bankers. But they don’t add up to inventory overall.
So if these homeowners can’t move because they can’t switch from a 3% mortgage to a 6.5% mortgage, it drives down demand (yes ✔) and it pushes inventory down by the same amount (yes ✔) , and the end result is a smaller one in market terms, Bothdemand And supply.
What exactly adds up to listing homes for sale?
In all of these situations below, a home is put on the market, and no homes are taken off the market, resulting in inventory actually increasing. You can probably think of a few other situations, but these are the big ones:
1. New construction. Lots of new homes are being built and the inventory of new homes for sale in all stages of construction piles up massively:
2. The homeowner dies or moves into a care facility, And the house is put on the market. There’s a lot going on now.
3. Vacant homes being put on the market, We studied Census Bureau data a while back, taking the math from the 11 million homes that are vacant year-round to the 3.5 million homes that may be on the market (rent or sale) but are off the market for a variety of reasons. If just 20% of these 3.5 million units that are out in the market appear in the market for sale, that would lead to a 75% increase in inventory.
4. The landlord rents and puts the house on the market, Some of them are moving now, as homeowners try to lock in and get the most out of the high prices. I know a few myself, including a realtor who completely cashed in on the peak in her local market last summer when she sold and moved to a nicer rental home.
5. The homeowner lives with friends or relatives or mixes homes. This can be a variety of arrangements, such as a carer living with a parent, or two single householders living together and working with one household.
6. Homeowner moves to another country For work or to retire, and the house comes on the market.
With 3%-ers pulled out as buyers And Sellers, the total market is very small now, and will be for years to come.
Homeowners sell the house they live in and move to another house, adding zero to their inventory at the end (+1 – 1 = 0) while brokers and bankers stay the same. That’s why the National Association of Realtors and the media, and almost everyone else, are constantly blaming low inventory on homeowners closing in on their homes with 3% mortgages, when in fact, they’re only to blame for less. sale – and dwindling commissions and huge job cuts – but with zero impact on inventory.
This means that there are very few buyers, which is what we are seeing, and that there are very few sellers, which is what we are seeing. In other words, a large group of buyers and sellers were simultaneously and in equal numbers forced out of the market by 3% mortgage rates, and they were gone for years to come.
That demand is gone; And that supply has been depleted, equally, with no impact on inventory but a huge impact on sales, commissions, profits and jobs.
The market is more in equilibrium than it seems: therefore prices are falling.
So now, it’s the remaining buyers and sellers that make up the market, and they’re a very small group, making for a very small market.
The fall in prices is showing that there is more equilibrium in this very small market, and when prices are low enough buyers emerge. And when these buyers have bought, prices drop further to attract the next wave of buyers, which is a normal market – but on a much smaller scale. And what’s gone is a massive churn of homeowners to sell and buy in order to relocate.
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