Why The Housing Market Could Decline

The housing market is going to cool off in the next few months because more supply will continue to come into the market, rates are going to keep rising, and the trend of people moving to the suburbs is going to partially reverse. Single family housing benefited from the virus.

Once the pandemic is over, we will see some weakness. Some upper income class people bought a second or third home to get away from the city. That won’t be necessary after the pandemic. On the other hand, millennials will most likely still favor moving to the suburbs because they are getting older and starting families.

As you can see from the chart below, the number of homes for sale plummeted during the pandemic because many didn’t want to have open houses which would risk spreading the virus. Now that housing is getting more expensive and the risk of the virus is being mitigated, the number of homes for sale will normalize. It might actually spike more than recent years because people who delayed selling their house will put it on the market.

The MBA purchase application data was hurt by the extreme weather in Texas. Yearly growth fell from 15% to 7% in the week of Feb. 19. Weekly growth fell from -6% to -12%. Once the yearly comps start getting harder in a couple months, we might see negative yearly growth.

Refinancing fell 11% week-over-week. Rising rates are going to hurt refinancing severely, since most people who could refinance probably did so in 2020. The pending home sales index in January fell from 126.4 to 122.8, which is a 2.8% decline. That missed estimates for no change. The pending home sales index is a leading index for housing. It signals moderation is coming this spring selling season.

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