By Jeff Ostrowski
Someday a buyer’s market will return, but it’s not today and it won’t be tomorrow. Bidding wars have returned and some metros still see rising prices.
NEW YORK – After a record-breaking run that saw mortgage rates plunge to all-time lows and home prices soar to new highs, the U.S. housing market finally started slowing in late 2022. Mortgage companies engaged in mass layoffs, real estate economists lamented a “housing recession” and home prices seemed poised for a correction.
But a strange thing happened on the way to the housing crash: Home values started rising again. In fact, housing prices have increased for three months in a row, according to the latest Case-Shiller home price index.
“The U.S. housing market continued to strengthen in April 2023,” Craig J. Lazzara, managing director at S&P Dow Jones Indices, said in a June 27 statement about the latest Case-Shiller reading. “Home prices peaked in June 2022, declined until January 2023, and then began to recover.”
Yes, home values were down compared to April 2022 – but only by a mere 0.2%. In other words, the housing boom might be over, but this pause in the real estate market isn’t shaping up as a crash.
Crunching the numbers in a different way, the National Association of Realtors (NAR) reports that median sale prices of existing homes had declined year-over-year for four consecutive months through May, with February’s drop marking the first decline in nearly 11 years.
This breather comes after a real estate party that raged on longer than anyone expected. NAR reported that median prices in the spring of 2022 topped $400,000 for the first time ever. Even after the recent retreat, prices are up by more than $100,000 since the coronavirus pandemic began in March 2020, according to NAR data.
Now, bidding wars have returned, and inventories remain frustratingly tight. “You’re not going to see house prices decline,” says Rick Arvielo, head of mortgage firm New American Funding. “There’s just not enough inventory.”
Skylar Olsen, chief economist at Zillow, agrees about the supply-and-demand imbalance. Her latest forecast says home prices will keep rising into 2024 – welcome news for sellers but not so great for first-time buyers struggling to become homeowners. “We’re not in that space where things are suddenly going to be more affordable,” Olsen says.
Still, a rapid rise in mortgage rates and a sharp slowdown in home sales has some bracing for the worst. In late May, Elon Musk – the multibillionaire founder of Tesla and owner of Twitter – tweeted this prediction: “Commercial real estate is melting down fast. Home values next.”
After the June 14 Fed meeting, Fed Chairman Jerome Powell told reporters he was keeping a close eye on the housing market. “Housing is very interest-sensitive, and it’s one of the first places that’s either helped by low rates or held back by higher rates,” Powell said in the press conference. “We’re watching that situation carefully.”
Regardless, housing economists and analysts agree that any market correction is likely to be a modest one. No one expects price drops on the scale of the declines experienced during the Great Recession. Rob Dietz, chief economist at the National Association of Home Builders, sums up the consensus among housing experts: “We’re thinking this is going to be a moderate downturn,” he says.
Is the housing market going to crash?
The last time the U.S. housing market looked so frothy was back in 2005 to 2007. Then home values crashed, with disastrous consequences. When the real estate bubble burst, the global economy plunged into the deepest downturn since the Great Depression. Now that the housing boom is threatened by soaring mortgage rates and a potential recession, buyers and homeowners are asking a familiar question: Is the housing market about to crash?
Housing economists agree that prices could fall further, but the decline won’t be as severe as the one homeowners experienced during the Great Recession.
One obvious difference between now and then is that homeowners’ personal balance sheets are much stronger today than they were 15 years ago. The typical homeowner with a mortgage has stellar credit, a ton of home equity and a fixed-rate mortgage locked in at a rate well below 5% – in fact, according to a new Redfin study, 82.4% of all current homeowners are locked in below the 5% mark.
What’s more, builders remember the Great Recession all too well, and they’ve been cautious about their pace of construction. The result is an ongoing shortage of homes for sale.
“We’re thinking this is going to be a moderate downturn.” – Rob Dietz, National Association of Home Builders chief economist
© Copyright 2023, Conley Publishing Group Ltd. All rights reserved.
