Inventory and months supply has been showing a fairly steady climb upward, while purchase mortgage applications index and pending home sales are way down. The market is effectively frozen, with most sellers still holding out without significantly dropping prices yet.

The Fed got the reduction of demand they wanted, and it’ll take time for prices to adjust back down to levels more inline with incomes and normal interest rates. But IMO, that’s exactly what the Fed wants. They don’t want another 2008 crash. They don’t want a 25-30% drop all at once. By holding rates at normalized levels (and even if they ease a bit to more “minimally restrictive” normalized levels) and dumping MBS from the balance sheet (most likely still via pass through payments), I think they’re banking on sellers giving in on prices over time, which would theoretically normalize the market again. So far though, sellers are holding out very close to sky high prices that were set by, and really only feasible with… 3% 30 year mortgages. And those are long gone now.

It’ll take time, but there also haven’t been any conditions that really force sales in most cases, so as of now, sellers can wait. As liquidity continues to get drawn out of the markets though, we may start to see more sellers incentivized to sell, sales of which will probably only happen at lower prices. Unless of course we see some big household income jumps, but we know the Fed doesn’t want that fuel on the inflation embers.

IMO, the housing market can’t stay at these ultra low transaction volume levels for too long, housing market churn is a big part of the economy.