From stagflation to cost relief in six months — that's the new picture of the housing market that has emerged in just the last few weeks. And to the extent housing has been a microcosm for the pandemic-era economy, the cooldown will present new challenges and opportunities over the next six months for both sellers and buyers. It should also provide some broader reassurance: It’s looking possible that we can unwind some of the explosion in housing unaffordability without crashing the market.
When stagflation was the leading dynamic back in March, the housing market story was: Relentless cost inflation and an inability for supply chains to catch up to demand is bad, but people still really want to own homes, and low mortgage rates are helping keep demand strong.
Today, the story has changed. Supply chains are finally catching up to demand, in large part because higher mortgage rates are making buyers more skittish and damping sales. At the same time, homebuilders are now in a position to use some of the cushion from record-high profit margins to offer incentives to buyers, improving the affordability picture for potential homeowners.
