The Spring Market Begins With the Lowest Inventory Ever, Mortgage Rates Continue to Rise

The Spring Market Begins With the Lowest Inventory Ever, Mortgage Rates Continue to Rise

  • Nick Leyendecker
  • 03/16/22
You can track the Twin Cities housing market data here. You can track mortgage rates here. You can track homebuilder confidence here. You can track showing activity here.
 
The spring housing market of 2022 has kicked into gear in the Twin Cities with record-low inventory as a tailwind and dramatically rising mortgage rates as a headwind.

The bond market is now pricing in 7 (quarter-point) rate hikes this year as the Fed continues to vow its commitment to battle inflation with tighter monetary policy in 2022 while (ironically) they continue to wrap up the largest expansion of money and credit by a central bank in the history of the United States and possibly in the history of the world. For context, since the onset of the pandemic, the Federal Reserve has expanded the supply of US dollars in circulation by 46% (M2 money supply) and has more than doubled its balance sheet from $4T to $9T, most of which was used directly to buy US government bonds and mortgage-backed securities.

With economic data likely decelerating in Q2 of this year and with the NASDAQ and the Russel 2000 already bouncing into bear market territory (with the other indexes not far behind), it will be interesting to see how long the Fed holds on to the tightening narrative this time. If yesterday's rate hike itself were to mark the cycle peak for bond yields and mortgage rates, it wouldn't be the first time.

The Median Home Price: The median home price in the Twin Cities for sales closed in February was $340,000. That is up 2.7% MOM and up 8.2% YOY as the spring market has kicked into gear. We expect home prices to continue to rise through June this year despite the climbing mortgage rate headwind, but that the rise will not be as extreme as it would have otherwise been, had mortgage rates remained stable in the 3% range.

 
Home Inventory: The home inventory level in the Twin Cities fell 1% MOM in February to 4,489 units which is down 17% YOY and is a new record low. Historically low and falling (in rate of change terms) inventory has been a primary theme of this now 10-year bull market in U.S. home prices. We expect inventory to chase demand into the spring market and then peak sometime in late summer or early fall.
 
 
Pending Home Sales: Pending home sales in the Twin Cities moved up 22% MOM in February as the spring market kicked into gear. That figure is down 9% YOY, in small part due to uncertainty and affordability issues surrounding rapidly rising rates but in larger part because we currently have the lowest inventory level in history. We expect pending sales to continue their seasonally dramatic incline through May.
 
 
New Listings: 4,486 new homes, condos, and townhouses hit the Twin Cities market in February. That is up 22% MOM but down 6.1% YOY. The YOY decline in new listings is in part due to rising costs and supply chain issues which have made it more difficult for home builders and developers to add inventory on the new construction side. We expect new listings, in pursuit of rising prices, to continue their seasonally dramatic incline through May or June.
 
 
 
Mortgage Rates: Mortgage rates moved up another 8% last week and are up 56% YTD. That is the most aggressive quarterly move-up in mortgage rates since 1980 when mortgage rates moved up from 12% to 18%. The bond market is now pricing in a full 7 (quarter-point) rate hike for 2022. With economic data likely decelerating in Q2 of this year and with the NASDAQ and the Russel 2000 already bouncing into bear market territory (with the other indexes not far behind), it will be interesting to see how long the Fed holds on to the tightening narrative this time. If yesterday's rate hike itself were to mark the cycle peak for bond yields and mortgage rates, it wouldn't be the first time.
 
 
Lumber Prices: The re-inflation of lumber prices continued in February as lumber jumped 30% MOM to $1,223, more than triple 2019 price levels.
 
 
Home Builder Confidence: The NAHB housing market index in the US edged down to 82 in February of 2022, the lowest in four months versus market forecasts of 83. “Delivery delays are raising construction costs and pricing prospective buyers out of the market. Residential construction costs are up 21% on a year-over-year basis, and these higher development costs have hit first-time buyers particularly hard" said NAHB Chairman Jerry Konter.
 
 
This concludes my Twin Cities housing market insight for March of 2022. Please don't hesitate to call us at (952) 222-7653 if you would like to go more in-depth on a particular market segment or dive into the current fair market value of a property that you currently own or manage.

Sources: NorthstarMLS, Infosparks Data, Hedgeeye Risk Management, FreddieMac.com, Nasdaq.com, TradingEconomics.com, fred.stlouisfed.org
 
 

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