Asking an angry spouse to calm down is not exactly a tactic that’s… effective.

By now, Jerome Powell has been effective at raising interest rates to help America’s housing market calm down.

Though mortgage rates have inched lower in recent weeks, they’re 2.1% higher than they were a year ago today.

The rate rise from early March to early May is the swiftest that I’ve seen in my entire life.

They scaled a wall. Clearly, this impacts affordability.

The rate of property sales is a little lower.

It’s getting more Darwinian out there. The NAR estimates that 15% of wannabe first-time homebuyers will be priced out of the market this year.

People have to live somewhere. If they can’t own, they’ll have to rent… or keep living in their parents’ basement.

The homeownership rate is currently 65%. It’s poised to fall faster than dogecoin. This means that the renter pool should swell, putting more upward pressure on rents.

You know how I’ve talked about how home prices rise first, then rent hikes lag behind? This is where rents catch up.

With housing prices, are we set up for a recipe of “housing crash” or is it more like “housing calm”?

Looking at purchase applications, demand is probably past its peak. But housing demand still drastically exceeds supply.

Normal supply is about 1.5 million units. We’ve come up from a jaw-dropping paucity of 376,000 homes back in February. It’s still 516,000 now (chart).

We’re only up from famine-like levels.

America still needs about 300% more inventory just to bring the market back into supply-demand balance.

Housing supply is inelastic; it cannot be increased quickly. It’ll take several years to reach balance.

How else can we measure this balance? Via days on market (DOM).

Pre-pandemic it was 45 days. Now, despite higher interest rates, it’s under 20 days.

Mortgage delinquencies have fallen for seven straight quarters. The forbearance program worked. One can critique its morality. But it kept people from losing their homes.

As the market entropy couldn’t last forever, it’s still a strong market. Expect a gradual return to a calmer, more normalized condition.

Soon you might not have to offer more than the list price for a property.

Expect less competition from all-cash buyers. (Those zero-leverage psychos.)

Hey, property inspections are back. Imagine that you can ask a seller to fix some things for you and not fear that they’ll reject your offer.

What’s the bottom line?

Rents should keep rising faster than historic norms.

Supply is so low that price crash prospects are near zero, probably even through 2023.

20%+ annual price increases still exist in many markets. Nationally, this is calming now.

By the end of the year, home price appreciation should still be higher than the historic norm of 5%.

Back on December 1st, I published GRE’s 2022 National Median Housing Price Forecast of 9% to 10% appreciation in this very letter right here.

I still like how that forecast looks today.

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