Housing market showing early signs of recovery? Maybe, experts say

The data pertaining to this year’s housing market suggests that it is in a delicate phase of recovery, potentially mitigating the impact of ongoing Fed rate increases. Despite the signs of improvement, economists approach these developments with caution due to various factors that warrant careful consideration.

With the possibility of an impending recession, the likelihood of an eleventh consecutive rate hike, and steady inflation loom, it might be premature to declare a complete housing market recovery. Nevertheless, the situation doesn’t necessarily indicate a crash. Discussions surrounding a housing market crash have been tempered by several significant factors that indicate an upward trajectory for it. 

What you should know: 

1. Despite the Federal Reserve rates increasing, average 30-year mortgage rates have shown a slight decline from their peak of 7.08% in October 2022. As of July 6, the mortgage rates have started to stabilize at around 6.81%, according to data from the St. Louis Fed.
2. In a statement released on June 27th by Craig J. Lazarra, managing director of the S&P DJI, it was reported that the National Composite of home prices experienced a 1.3% increase in April, replicating the growth seen in March. The data also revealed that the National Composite is now only 2.4% below its peak in June 2022.
3. According to the data from the Federal Reserve Bank of St. Louis housing inventory is on an upward trajectory, with over 613,000 active listings recorded in June.
4. Based on U.S. Census Bureau data, the number of home sales has shown a steady increase month over month, rising from 625,000 in February to 763,000 in May.

Even though the potential for a budding recovery is there, several other factors could pose challenges. The demand for homeownership remains consistent, as indicated by a recent housing survey conducted by the Federal Reserve Bank of New York, which reported that 69.7% of renters either prefer or strongly prefer owning a home. However, the current housing supply is struggling to keep up with these demands.

During the pandemic, mortgage rates and refinances were significantly reduced through the Federal Reserve rate cuts. As a result, many homeowners were hesitant to let go of their 2% to 4% rates and opt for new homes with much higher rates, approaching 7% or more. To cope with the limited housing inventory, a considerable number of potential homebuyers are now pushing their budgets to pursue new construction options instead.

The housing market is not yet on the mend, but various data points indicate that a potential recovery might be on the horizon. This is positive news for the economy; however, homebuyers will continue to face challenges such as high mortgage rates, limited housing inventory, and stiff competition. Due to the absence of clear signals of a robust housing market rebound, economists are exercising caution and refraining from declaring a full-fledged recovery at this time.