The National Association of Realtors released existing home sales data for January. Despite being fairly close to expectations, the index fell for the second straight month to its lowest level since 2011 (slightly above the initial lockdown lows of 2020).

With the dramatic changes in rates and housing sentiment that took place throughout 2022, it’s not surprising that sales declined so sharply.  Even though there had been a glimpse of hope for recovery in recent months, once again rates are ripping up toward 7%.

It will only get better when inflation has been firmly controlled and the economy is no longer demonstrating periodic signs of “running hot”. For us in the housing/mortgage market, the concept of an economy “running hot” seems absurd, but in many sectors, it is a reality. It was confirmed in recent data, particularly in the jobs report earlier this month and a number of other reports since then.

The good news, on the topic of “how bad could things get,” is that it could be much worse.  Yes, the rate spike has been a burden, but we must not forget how overheated the housing market was as well.  Median prices remain above their decade-long trend and have climbed year-over-year in January.

We can expect to see year-over-year price declines in the coming months, based on the explosive growth in prices during the early part of 2022, but unlike the slide that began in 2006, there isn’t enough inventory to fuel such a large, sustained decline.  Since underwriting standards are more stringent (compared to 2006), there is less of a possibility of a glut of new inventory, and there aren’t as many systemic risks in the secondary mortgage market, so there is no bubble to deflate.

Overall, things aren’t great, but at least this time, there’s a light at the end of the tunnel that points to a brighter future instead of an impending tragedy.