Housing Supply Rising Too Late?

Mark Hanson, who has done excellent analysis on the housing and mortgage market in the US, brought some more interesting data to the table today. He has been most vocal over the past 18 months and beyond that the surge in housing prices has been a function of one stimulus after another (tax credit then amazingly low rates).

Today he shared that housing SUPPLY has expanded – something buyers and agents were clamoring for – before rates jumped 45% (from 3.25 to ~5%)  and the ability to pay dropped enormously in one month. Here’s Mark:

I am tracking a sharp jump in MLS “listed” supply all over the Western region in the past 3 weeks…As more evidence clearly presents itself — as the lagging housing data begin to capture the effects of the interest rate “surge” that most everybody has blown off as “negligible” — I am more convinced than ever that it was as a significant catalyst;  thata 45% increase in interest rates over 6 weeks has acted a lot more like the sunset of the 2010 Homebuyer Tax Credit — an immediate removal of stimulus that was mostly responsible for driving demand and prices — than any other time in modern housing market history when rates “rose” slowly over 3 to 6 “quarters” giving everybody lots of time to “think” and act accordingly…

Some will say that a wave of supply is great for the market;  exactly what is needed in an “under supplied market.  To this I have a few things to think about.

First, there is not a shortage of houses in which “to live”. Second, “total potential demand” is half of what it used to be.  Remember, analysts, builders, the media, investors et al are looking at historic metrics on supply and demand without normalizing the numbers to adjust for 50% of all mortgage’d homeowners — the absolute largest demand cohort — being locked-in due to negative equity, Lastly, a surge of supply into a market with 10-year notes at 1.6% and 30-year mortgage rates at 3.25% — when investors and organic buyers were driven by the biggest stimulus to ever hit housing too jump all over each other and pay 15% over last price/appraised value — is a completely different situation than a surge of supply AFTER a house prices and interst rate surge, which have both done a great job of sidelining a large percentage of investors and organic buyers alike…

Read the rest of Mark’s analysis on his site HERE. He is a good foil to the mostly euphoric spin on housing we are getting from those whose time horizon goes back no more than 9 months. For a good analysis of the bullish side, or at least what has been happening without emotion, I recommend Calculated Risk.