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Three Cents Worth: Time Lag

[Today, our chartman Jonathan Miller examines the interplay between mortgage rates and inventory. Click on the image to exand.]

Memories of the frenzied real estate market of the past five years are sometimes a blur and I thought it would interesting mark the spot where the problems might have begun. Much of the changing real estate landscape (not just in New York) across the country is attributable to the rising property inventory and rising mortgage rates.

The housing boom probably ended by the 3rd quarter of 2005 but the groundwork for the shift likely occurred more than a year earlier. The momentum of the market carried activity for another year. By looking at the listing inventory and mortgage rates it would appear that the shift began in the first quarter of 2004.

Mortgage rates bottomed out and inventory dropped (although inventory dropped again at the end of 2004). The 30-year fixed remained flat but the 1-year rose steadily as the Fed began its measured rate increases, the first of 17, in June of 2004. It appears that the adjustable rate mortgage trend more quickly followed inventory trends (or vice versa), even though it represents about 30% of mortgage applications.

Inventory trended downward recently, but that was due to a drop in co-op listings. Condo inventory actually increased this summer. My takeaway from all this is it took 12-18 months for the change in mortgage rates to impact the housing market. The Fed did not increase rates today. My guess is the impact of interest rate changes from the last increase this summer will still be with us for a while.
· Manhattan Inventory v. Mortgage Rates [Miller Samuel]