The housing market in the US is going through an interesting period. Demand is slowing down due to high mortgage rates (8%) and high prices, but there is low inventory, which means that supply cannot satisfy even the decreasing demand, and as a consequence, affordability is the lowest on record. So much so, that if housing prices were to fall 30%, affordability will stil be below the levels we saw pre pandemic. National average housing price to income is currently 4.1, well above the “normal” 2.6. Home prices in the US have tripled vs incomes since the great financial crisis. There are also less transactions, because those who bought during the low mortgage era, at 3%, would have to severely downsize if they move to another house for the same amount of cash flow. This is important for inflation because the shelter component is almost 35% of #cpi and it continues to show resiliency. Also, because with this dynamic, if continued, there will be a correction in housing prices as home builders will flood the market with inventory once the situation improves.
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Source: the Kobeissi Letter
