The pandemic housing market has been red hot. Many people moved, either to relocate or to look for more space, and very cheap mortgages produced high demand for a limited supply of housing. But now that interest rates are rising and the Fed is no longer buying mortgage-backed securities, mortgage rates are nearly double what they were a year ago. This and high house prices may be reducing demand and cooling the housing market. The figure below is the ratio of houses for sale to houses sold, an indicator of how tight the housing market is. The ratio reached record lows during the fall of 2020. In the last few months, the ratio shot up. It has not been this high since 2009. A cooling housing market does not necessarily mean the end of a housing bubble. It is not clear the latest run up of prices was a bubble to start with, at least in most places. It was just more demand than supply. Also unlike the mid-2000s, most borrowers have good credit, aren't over-levered, and many have fixed rate mortgages. At the very least it does appear we've reached the end of the very strange pandemic housing market.
Source: FRED
Allison Schrager is a senior fellow at the Manhattan Institute. Follow her on Twitter here.
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