On
March
18,
2020,
purchase
application
data
broke
out
to
pre-cycle
highs
in
demand.
Home
sales
hit
their
highest
levels
in
a
decade
right
before
COVID-19
hit
our
economy.
This
matters
because
inventory
was
already
heading
toward
all-time
lows
before
COVID-19.

Going
back
further,
the
rules
put
in
place
after
the
great
financial
crisis
have
had
a
critical
impact
on
inventory.
After
2010,

qualified
mortgage
laws
were
in
place,
meaning
everyone
getting
a
mortgage
has
to
be
able
to
repay
the
loan.
In
practical
terms,
we
no
longer
have
many
exotic
loan
debt
structures
or
the
guidelines
to
allow
loose
credit.
You
can
see
the
drastic
change
this
made
in
the

Mortgage
Bankers
Association

Credit
Availability
index,
below,
which
skyrocketed
in
2005
and
2006
before
an
epic
collapse
in
2008.

Demographics
also
play
a
role
here.
Since
most
sellers
are
buyers,
inventory
should
be
stable
if
demand
is
stable.
However,
with

first-time
homebuyers,
they
don’t
provide
a
home
to
sell
when
they
buy,
which
means
they
can
soak
up
the
inventory.
This
is
what
happened
post
2010:
The
millennials
started
to
buy
homes
in
2013
and
they
finance
90%
of
those
homes.
So
inventory
slowly
broke
lower
and
lower
as
we
came
into
the
years
2020-2024.
These
years
have
seen
the
most
enormous

housing
demographic
patch
ever
recorded
in
history,
with
ages
28-35
being
massive.

All
of
these
factors
set
the
stage
for
what
happened
next.
As
you
can
see
in
the
chart
below,
when
we
entered
2020,
housing
inventory
was
already
on
the
verge
of
breaking
toward
all-time
lows.
In
2022
we
had
the
most
significant
home
sales
crash
ever
and
even
in
2024
we
are
in
the
third
year
of
the
lowest
number
of

home
sales
ever
—
but
inventory
is
still
near
all-time
lows.

NAR
Active
Inventory
Data,
traditionally
between
2-2.5
million,
currently
at
1,110,000

As
you
can
see
above,
inventory
grew
at
a
healthy
clip
in
previous
decades
and
then
had
a
parabolic
run
higher
in
2006
and
2007
when
active
inventory
reached
4
million.
So
what
happened
after
2010
that
led
inventory
to
these
record
lows
so
that
even
the
most
significant
sales
crash
in
history
didn’t
move
the
needle? It
comes
down
to
housing
credit!

In
previous
decades,
credit
flowed
more
easily
and
many
people
could
list
their
homes
and
buy
other
homes
without
the
restrictions
of
the
qualified
mortgage
rule.
Now,
nobody
is
listing
their
homes
to
sell
and
buy
unless
they’re
100%
pre-qualified.
In
the
past,
when
credit
was
freer,
there
was
no
concern
about
being
unable
to
buy
as
long
as
you
knew
credit
was
there
to
assist
you.

On
top
of
more
legitimate
buyers,
we
fixed
the
credit
markets,
meaning
housing
credit
looks
fantastic.
Just
look
how
lousy
credit
looked
below
in
2005,
2006
and
2007
—
all
before
the
job-loss
recession
in
2008. Compare
that
to
how
solid
credit
data
looks
over
the
last
13
years
since
the
qualified
mortgage
laws
were
implemented.

Americans
don’t
have
a
recast
rate
loan
risk;
almost
all
mortgage
loans
after
2010
are
fixed
30-year
mortgages,
which
allows
homeowners
to
benefit
from
fixed
debt
costs
and
rising
wages.
This
means
their
cash
flow
is
excellent,
as
the


FICO
score
data
has
shown
us
for
a
long
time
and
they
can
stay
in
their
houses
for
as
long
as
they
want.
So
you
can
see
why
we
have
so
few stressed
sellers.

A
perfect
example
is
that
the
last
few
years,
new
listings
have
been
trending
between
30,000
and
90,000
per
week.
It
didn’t
matter
if

mortgage
rates
were
at
3%
or
8%,
new
listing
data
has
trended
at
historic
lows
the
past
few
years.
Contrast
that
to
the
time
from
2008
to
2012
when
this
data
line
trended
at

250,000
to
400,000
per
week.
Because
credit
channels
are
normal
and
the
quality
of
homeowners
is
good,
we
don’t
have
a
lot
of
forced
selling
going
on
today
versus
that
period.

So
when
I
talk
about
credit
channels
running
inventory
channels,
it
means
housing
credit
is
very
boring
—
and
that
is
a
great
thing
for
homeowners
and
the
housing
market.

Americans
buy
a
home
to
live
in,
raise
their
kids
and
go
to
work;
they
don’t
act
like
stock
traders.
With
the
30-year
fixed
mortgage
being
the
staple
of
the
housing
credit
markets,
the
inventory
data
has
been
trending
one
way
for
some
time.
This
doesn’t
mean
inventory
can’t
grow
in
the
U.S.,
but
unless
we
have
a
job-loss
recession,
it
will
take
a
lot
of
time
to
get
national
inventory
levels
back
to
2019
levels.
And
those
inventory
levels
weren’t
even
that
high
to
start
with.