Demand dropped, inventory building

Since I was writing up the overall sentiment of the market, I figured it’s only fair I share my own thoughts. As I’ve mentioned before, I’m not an analyst or anything so this is just one buyer’s thought process.

Being new to this whole world, I figured I’d mentally set expectations and see if the market reacted. If it didn’t, I’d jump back in and buy.


Months ago, when we stopped searching, it was because interest rates were going up and the fed said they were going to unwind the balance sheet. My hope then was that this would affect buyers and reduce demand. Some people refer to the Fed’s switching to tightening conditions like this as “demand destruction”. And that’s essentially what I was expecting to see, some categories of demand would drop out – investors, second home buyers, disqualified buyers.

Since inventory is not supply, if demand drops and supply stays the same, it stands to reason that inventory would climb. My plan was to wait 6 months and see if inventory would build.

Another hope was that rental vacancies would go up by fall and that would cause landlords to sell properties they had recently bought. That hasn’t happened yet but it was predicated on some changes this fall, so we still have to wait.


On the inventory front, we have seen more improvement than I expected. This past 2 months inventory has built more than anyone expected, faster than any year since 1983.

This graph shows the percent change compared to last year and 2 years prior (pre-covid). It’s a good visual of the fact that we now have growing inventory (more than last year) but yet have some ways to go to get back to pre-covid levels.

This is a very good sign to me that things are changing direction. Before this, we had been dropping inventory for years.

The future

This week the fed starts QT and will let the balance sheet runoff twice as fast as the last time. This will tighten credit even further.

Currently, prices continue to rise but I suspect it is the buyers that have been desperate to buy for the last year finally succeeding. This can be seen in the sudden flood of “got the keys!” posts from FTHBs on real estate forums. I also noted that in Canada, right before prices started to fall, sales plummeted and prices went up faster than ever. So there’s a certain psychology in the market that makes this happen. An “acceleration phase” at the top of the bubble.

My prediction therefore for the next month is more inventory, more price drops (at the time of listing) and more relistings. I’m not sure about median price, but I’ll hold out hope for maybe maybe a slight price drop nationally, but not in San Diego.

Disclaimer: I’m an idiot first time home buyer. I’ve never taken an econ class in my life. I’m just sharing what I see and learn as it happens. I am 100% certain I will get things wrong, so don’t take any of this as the golden truth.

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