Home prices have increased steadily month-over-month since February. In fact, home prices went up a whopping 4% between February and May alone, according to the CoreLogic S&P Case-Shiller Index released in July.
And while today’s prices are still slightly below year-ago numbers, the continued uptrend has many wondering: Has this latest housing downturn already come to an end?
According to one major industry player, it has. Here’s what they have to say—and the data that might just back them up.
NAR: Recession is Over, But Recovery is Not
The National Association of Realtors’ (NAR) latest pending sales report shows pending home sales were up slightly in June—the first increase since February of this year. This, combined with a dearth of inventory and subsequently rising prices, has the trade group’s chief economist calling the recession officially over.
“The recovery has not taken place, but the housing recession is over,” says Lawrence Yun, NAR chief economist. “The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply.”
That lack of supply Yun mentions has been a problem for years. But recent mortgage rates—which are considerably higher than what the majority of homeowners have on their current mortgage —have worsened the issue, keeping many existing homes off the market. According to Redfin data, the number of for-sale homes is down 12.5% compared to last year as of June. Zillow data from 2021 also shows that the U.S. market is about 4.3 million homes short of demand.
That’s why, despite the recession being “over” by Yun’s assessment, we won’t see a total about-face in the market anytime soon. This means there won’t be skyrocketing prices like we saw in 2021, nor will rampant bidding wars likely be the case. According to Redfin, about 40% of homes sold for above listing price in June—down 15% compared to last year.
What Will the Market Look Like?
Instead of a complete turnaround, the near-term housing market will likely look more stable than we’ve seen over the last year or so. Mortgage rates have “topped out,” Yun posits, and NAR estimates the average 30-year fixed mortgage rate will finish out 2023 at 6.4%. For 2023, Fannie Mae projects a 6.6% average, and the Mortgage Bankers Association predicts 5.9%.
All of these projections are lower than today’s 6.9% rate, but they don’t amount to any significant drop. And until rates fall more considerably, they likely won’t cause any major influx in demand that could rock the market. According to Yun, “a rush of buyers” would take what he calls a “meaningful decline” in interest rates.
That meaningful decline isn’t likely until next year or beyond, according to most. Here’s a look at how major industry players think rates will shake out by the end of 2024:
- NAR: 6%
- Fannie Mae: 5.9%
- MBA: 4.9%
These slightly lower rates could spur minor increases in demand, sales, and prices, per NAR’s estimations. While the group expects home prices to remain fairly steady this year, with a small decline of just 0.4% across the year, by the end of 2024, the organization predicts prices will increase by 2.6% and sales by more than 15%.
The Construction Factor
Though mortgage rates play a role in how much inventory hits the market, so do home builders. And they’ve been largely under-building since the crash of 2008.
While that likely won’t change this year (housing starts are projected to come in 5.3% under last year’s numbers by the close of 2023), next year could mark a turning point. NAR expects 1.55 million starts next year—up 5.4% for the year. Keep in mind, though, starts on single-family homes take about 8.3 months from start to completion, so it could be a while for that supply to trickle down to consumers.
“It is critical to expand supply as much as possible to widen access to homebuying for more Americans,” Yun says. “Home prices will be influenced by how much inventory is brought to market. Increased homebuilding will tame price growth, while limited construction will lead to home price appreciation outpacing income growth.”
We’ll just have to see how it all plays out.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
