The decline in new listings, which has slowed the growth rate of total inventory in recent weeks, has been one of the most significant stories in the housing market. Given that the data has been negative for several weeks, we can notice a decline in new listings. One point that has been emphasized is the possibility that increased mortgage rates could cause a halt in demand, allowing for greater inventory to build up due to weak demand.

This was the case after March of this year when rates were climbing, especially between 5% and 6%. The increase in inventory is similar to what we saw in 2014, the last time overall inventory increased, and the last time mortgage purchase applications showed a decline year over year. But the weakening demand is just one of many factors contributing to inventory building. The Industry needs a fair amount of new listing growth each year if we want to see inventory expand to 2019, 2016, 2014, or even 2012 levels. We are not discussing forced sales, repossessions, or even short sales. We should be able to reach peak 2019 inventory levels with just conventional new listings, higher rates, and more time.

The issue with new listings falling off now is what will happen if mortgage rates make a significant downward push. Demand-driven slowdowns pauses, and occasionally further drops in housing supply are possible at that time. If mortgage rates peaked at 6.25% or 6.50%, the next significant swing should be lower, which poses a risk to restoring system balance. With the economic challenges, housing inventory growth has not been in good shape. To read more on this, click here.

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