The National Association of Realtors’ chief economist has declared that the housing recession is officially over. The trade group is optimistic about the future, expecting lower mortgage rates and an increase in home sales in the coming year.
According to the trade group’s data, pending home sales saw a modest increase of 0.3% in June, marking the first month-over-month growth since February. Lawrence Yun, the chief economist, expressed his confidence in a statement, stating that while the recovery is not yet complete, the housing recession has come to an end.
The current state of the housing market is somewhat unusual. Existing-home sales in June were approximately 19% lower than the previous year, and pending-home sales, an indicator of future sales, were down by 15.6%. However, new home sales saw a significant boost of around 24% compared to the previous year. This increase can be attributed to prospective buyers seeking out newly-built options.
Despite these positive developments, housing costs still pose challenges for buyers. Peter Boockvar, an economist and the chief investment officer of Bleakley Financial Group, warns that the affordability issue persists for first-time homebuyers. The pending home sale index itself remains near its lowest level since 2010, not accounting for the impact of Covid.
Nevertheless, June’s rise in pending sales is just one of many signs that the housing market is rebounding from the recession that began last summer with the rapid increase in mortgage rates. Home prices have been strengthening over the past few months, although they still have not reached last year’s peak. Furthermore, new home construction has seen growth, with single-family starts reaching their highest level since August of last year, according to Census data.
Morgan Stanley researchers also highlight that housing headwinds globally are approaching their peak for this cycle. In a separate report, they note that the expected peak in policy rates in developed markets during the second half of the year marks an important turning point.
Overall, the National Association of Realtors’ declaration that the housing recession is over brings hope for a more positive future in the real estate market. With anticipated lower mortgage rates and continued growth in home sales, potential buyers may find more opportunities and a brighter outlook.
Housing Market Predictions for the Future
Industry analysts are forecasting an increase in home-buying activity in the near future, although the boost to housing prices may be limited. According to these experts, the challenging state of affordability at present is a key factor that may hamper significant upside potential. However, they also believe that there will be gradual improvement in affordability moving forward.
Yun, an expert in the field, expects that housing will start making a positive contribution to GDP in the third quarter. He emphasizes that, from a consumer perspective, a housing recession revolves around home prices. Yun suggests that the decline in home prices seems to have ended, and there are indications of a resurgence. In fact, multiple offers have become quite common, making it unlikely for buyers to find bargains. As a result, Yun concludes that the era of a housing recession is over.
The National Association of Realtors (NAR) has also released its economic outlook, which predicts a small decrease of 0.4% in the median sale price of existing homes in 2023 before a gain of 2.6% in 2024.
In terms of existing-home sales, which form the majority of transactions in the housing market, NAR expects a 15.5% increase in the seasonally-adjusted annual rate in 2024 following an anticipated 12.9% drop this year. The association also foresees a decline in the average 30-year fixed mortgage rate from 6.4% in 2023 to 6% in 2024.
It is worth noting that mortgage rates have remained above 6% in the first half of this year—significantly higher than their lows of under 3% during the early stages of the pandemic. As Freddie Mac’s chief economist Sam Khater points out, these higher interest rates have been affecting interest rate-sensitive sectors like housing. However, Khater also mentions that consumer confidence has been on the rise in July, which can often result in increased spending and more people entering the housing market.
According to the NAR’s Yun, with consumer price inflation stabilizing near the desired conditions set by the Federal Reserve, it seems that mortgage rates have reached their peak. Given the continuing addition of jobs, Yun suggests that a significant drop in mortgage rates could lead to a surge in buyers later this year and into the following year.
In conclusion, while there are expectations for increased housing activity, factors like affordability and interest rates will play crucial roles in shaping the future of the housing market.