Housing market recession is already ending
“We’re not in a recession,” Evans said. “We’re in a slowdown, somewhat. But I don’t think a recession would be the correct word for it at all.”
That’s the growing message from home builders, real estate agents and economists who say last year’s housing market recession — which many feared would linger as the Federal Reserve fought to raise interest rates and crush inflation — has already turned around. Supply chains are easing up, boosting builder confidence and helping construction crews finish homes more quickly. High mortgage rates are cooling demand but not zapping it altogether. Now that the frenzied bidding wars of the pandemic are over, there are more homes available at any given time, which gives buyers some options. And after dropping in the latter half of 2022, prices are slowly stabilizing, in another shift away from the pandemic’s warped markets.
That’s good news for the overall economy, too. The housing sector — from contracting jobs to home purchases to mortgage loans — is a major driver of consumer spending and economic growth. It is also one of the industries most sensitive to interest rates, which the Fed pushed up at a historically fast clip beginning in March 2022.
“The housing recession is over, but the question becomes, ‘What will the recovery look like?’” said Lawrence Yun, chief economist at the National Association of Realtors. “The ideal recovery is where we have more inventory, more supply coming onto the market, so that the potential home buyers have access to buying a home without seeing a price increase.”
There is still a massive housing shortage nationwide, with economists estimating that the country needs anywhere from 1.5 million to 5 million homes to fill the gap. Compounding the problem is that current homeowners with low mortgage rates — say 3 or 4 percent — aren’t selling their houses, clogging up supply in a phenomenon economists dub “hating your house, but loving your mortgage.”
But there are signs that a recovery is underway. Sales of newly built single-family homes jumped in May to the highest level since February 2022, according to the most recent data from the Department of Housing and Urban Development and the Census Bureau. That marked a 12.2 percent increase compared with the previous month.
New homes also made up 31 percent of the total inventory in May, compared with a more typical, pre-pandemic 15 percent, according to the National Association of Home Builders.
Prices are improving, too. Home prices peaked in June 2022, then dipped through the rest of the year as the housing recession took hold. But they’ve been recovering steadily. After seasonal adjustment, the closely watched S&P CoreLogic Case-Shiller Index showed that prices rose 0.5 percent in April compared with March, the third straight month of modest increases. Prices are still 1.8 percent below the June peak.
Location matters. Seasonally adjusted data showed that of the 20 largest metro areas tracked by the index, only one saw price drops between March and April. Prices in Boston rose 1.5 percent over the month. In Charlotte, 0.7 percent.
Five years ago, Jay Thompson bought his house in Matlacha, Fla., for $375,000. Back then, he didn’t think he’d be there for the long haul; he likes to fish, and his wife wanted to be closer to the beach. So as they looked to relocate to South Venice, they put their house on the market last summer for $850,000, “just as the market was about to come down from those lofty highs,” he said.
The house didn’t sell, and then Thompson had to spend the next few months repairing hurricane damage. In May, he re-listed the home for $750,000, and it sold later that month for $725,000 — nearly twice what he’d paid for it just five years earlier.
Still, Thompson wonders if sellers in the area will keep chasing last year’s peak sale prices even as the market recalibrates.
“In that particular area, it’s a tough sell, because people aren’t willing to come down in price yet,” Thompson said. “They’re still remembering how lucrative it was in 2022 and aren’t willing — especially if they just recently bought — to bring their prices down to reflect the current market.”
In Boise, Idaho, real estate agent Debbi Myers saw the local market explode as West Coast transplants and others swarmed in and scooped up available homes. Then, as the Fed hoisted rates last year, Myers said, there was a bit of buyer pullback as some people waited to see what might happen with mortgage costs and the broader economy.
But now things are getting closer to normal. Homes are staying on the market between 60 and 90 days, rather than the pandemic-crazed “60 or 90 minutes,” Myers joked. In Ada County, Idaho, the number of single-family homes on the market grew for the fourth straight month in June, according to Boise Regional Realtors. That month, the median sales price was $545,000 — 8 percent less than in June 2022, but the third consecutive month of gains.
“Our prices were over, and then under, and now they’re kind of settling where they ought to be,” Myers said.
The Boise example, plus that of Evans in north Texas, square with the Fed’s view of the housing sector. Minutes from the central bank’s June meeting showed that some officials believed the effect of steep rates on the market “appeared to be bottoming out, with home sales, builder sentiment, and new construction all having improved a little since the start of the year.”
The Fed’s “beige book,” which compiles economic anecdotes and survey data from across the country, offered a few more examples. The Dallas Fed reported that construction cycle times have improved and that housing starts are expected to increase in the second half of the year. The Philadelphia Fed said sales of existing homes were inching up but were still below prior years, especially in the normally busy spring.
What happens next may depend on how much harder the Fed pushes to slow the economy. Inflation has eased significantly, but it’s still not as low as officials would like. So after 15 months and 10 consecutive rate hikes, the Fed left rates unchanged in June but signaled that two more hikes were coming by the end of the year. One of those, likely a quarter of a percentage point, is expected later this month. As markets priced in the next hike, the 30-year fixed-rate mortgage ticked up slightly last week to 6.96 percent, according to Freddie Mac.
“No one is talking about an aggressive rebound,” said Robert Dietz, chief economist at the NAHB. “They know there’s going to be stops and starts. … When interest rates move up 20 or 30 basis points, there’s going to be some pricing out.”
Ryan Basten, a broker associate in Ulster County, N.Y., has watched more and more people get priced out of the Hudson Valley, where prices exploded during the pandemic as New Yorkers fled upstate. Basten said there’s still huge demand for homes between $500,000 and $800,000, especially among buyers who aren’t deterred by high interest rates. The median home-price buyer, “if it exists,” he said, could pay almost double for a home compared with pre-pandemic times, between the sheer price run-up and steep monthly payments.
There are nowhere near enough homes, but there’s been some improvement; days on the market have roughly doubled, from about 34 days to 70. Still, he worries that the housing recovery, if it continues, won’t reach everyone.
“I don’t see it loosening up,” Basten said. “I think what we’re experiencing is going to last for a while.”
