May 25, 2022

The housing market has been keeping its head down, keeping calm, and carrying on in the face of the biggest rate spike since the 1980s.  The ability to ignore higher interest rates is nothing new for home sales.  In fact, sometimes we see almost no reaction in sales numbers when rates rise.

We have had several of the biggest rate spikes of the past decade (and yes, they do look small in comparison to 2022).  While there is perhaps some small impact on new home sales, it’s minimal at best.  Perhaps home price stability had something to do with that, or perhaps those rate spikes weren’t big enough to have a major impact in their respective home price environments.  Perhaps sales were simply still experiencing a rebound effect from the housing crisis.

Whatever it was that accounts for the resilience in the past, it’s clear that something new is happening right now.  Moreover, it is happening QUICKLY.  Just last month, New Home Sales were still at 763k, a level not seen between the housing crisis and the pandemic.  Now in today’s new numbers from the Census Bureau, New Home Sales have plummeted to the lows seen only a few times in the 3 years leading up to the pandemic.

Let’s not overcomplicate this: whether we’re talking about new or existing homes, prices have surged at the fastest pace on record.

But has it also occurred in spite of rising rates?  That’s a much better question.  To some extent, the supply/demand environment in housing has given home prices some immunity from higher costs (whether those costs are from higher prices or higher rates).  To what is probably a larger extent, we simply haven’t seen enough time pass for the effects of higher costs to take a toll on demand.  After all, rates didn’t really begin to spike until a majority of the recent home price gains were in place.

All that to say the housing market hasn’t exactly turned on a dime to the extent suggested by today’s New Home Sales data.  Yes, sales are declining, but that’s a logical consequence of the affordability issues created by an unprecedented simultaneous surge in prices and rates.  Housing overheated.  Cooling is welcome.  Examining and quantifying that cooling will be more interesting and more meaningful in the coming months as the home price data increasingly catches up with supply/demand/affordability inputs.