Low housing inventory could continue to drive up prices unless increased mortgage rates slow demand, says Bill McBride in his CalculatedRisk Newsletter. House price growth appears to be slowing and lending is solid, but unless inventories increase, buyers will struggle to find affordable housing on the market.
Unregulated areas of finance like cryptocurrency could also cause economic problems and stir up the housing market, but most economists are turning their attention to mortgage rates to determine housing supply and subsequent prices.
During the housing bubble, I thought that 1) house prices were too high, 2) there was significant speculation, and 3) lending standards were too loose (“fog a mirror, get a loan”). I was predicting a significant decline in house prices, although I was uncertain when the bubble would end. When inventory started to increase sharply at the end of 2005, it was clear the bubble was about to burst (see Inventory will Tell the Tale). And the data matched my story.
Currently my view is house prices seem too high, but lending has been reasonably solid, and there are some fundamental reasons for the high house prices (See: The Housing Conundrum)
If inventory stays low, then house prices will continue to rise fairly quickly (although it appears house price growth is slowing). Double digit house price increases aren’t sustainable, so the question I’m asking now is: What will cause inventories to increase?
Responses
How could it NOT slow down?
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