There is little debate that the U.S. housing market is cooling after home values rose wildly during the pandemic. Home prices fell year-over-year in February for the first time in 131 months, ending the longest streak of price gains.
The median sales price of existing homes fell 1.7% to $388,800 in April from a year ago.
Meanwhile, high mortgage rates, which have doubled since the start of last year, have limited homebuyers’ purchasing power. Volatility in the banking sector, headlines about job cuts and rising recession risks are also causing prospective homebuyers to hold back.
So this means a housing crash could be on the horizon. Housing experts don’t think so.
“Despite the uncertainty in the economy and housing market right now, there is little to suggest that the housing market is ready for a crash,” said Lisa Sturtevant, chief economist at Bright MLS. “For housing prices to fall like we saw in 2008, for example, we would need demand to pull back sharply and/or supply to increase significantly.”
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New houses.A large division of housing inventory. New construction versus existing homes
High demand for apartments
While home prices have declined slightly year-over-year since February, a lack of inventory and a strong labor market have contributed to persistently high home prices despite much higher mortgage rates.
“The housing market can’t compare to last spring’s intense home buying market,” said Jessica Lautz, NAR’s deputy chief economist and vice president of research. “However, there is a great demand for apartments. A third of homes sold in the last month were above asking price and the typical home received three offers.”
Properties typically stayed on the market for 22 days in April, down from 29 days in March, but compared to 17 days in April 2022. 73 percent of homes sold in April were on the market for less than a month, according to NAR.
Limited housing inventory
According to the National Association of Realtors, inventory averaged 1,630,000 listings at any given time in the first quarter, down 40% from the first quarter of 2019, a year before the start of the COVID-19 pandemic.
Supply has been limited because 85% of mortgage holders are locked into mortgage rates below 5%, preventing current homeowners from selling their home and buying another at today’s high interest rates.
The total inventory of apartments registered at the end of April was 1.04 million units, 7% more than in March and 1% more than a year ago (1.03 million). According to the National Association of Realtors, unsold inventory is at the current sales rate of 2.9 months of inventory, up from 2.6 months in March and 2.2 months in April 2022.
“Supply is still very, very low, which would keep house prices from collapsing, even if we were to see a drop in demand,” says Sturtevant.
A large influx of houses is unlikely
If there were significant job losses, we could see an increase in the number of people who can’t make their mortgage payments and who will therefore be forced to list their homes for sale, Sturtevant said.
“Right now, though, even if we do go into recession later this year, the labor market is still extremely tight and major job losses still look unlikely,” Sturtevant said.
New Home Sales and Builders Trust
Builder confidence in the new single-family home market rose five points to 50 in May, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released in May.
This is the fifth consecutive month that builder confidence has increased and the first time the sentiment level has reached the mid-point of 50 since July 2022. poor”.
The inventory of new homes for sale at the end of April was 433,000, representing 7.6 months of supply at current sales rates.
The median sales price for new single-family homes fell to $420,800 in April from a median price of $455,800 in March. The median home price in April 2022 was $458,200.
“New home prices adjusted due to lower interest rates despite a 38% increase in construction costs,” said Robert Dietz, chief economist for the National Association of Home Builders. “The prices of new apartments decreased by 8 percent year-on-year in April. That will probably be the end of that price adjustment.”
The fact that single-family homebuilder sentiment is increasing each month of 2023 signals a bottom is forming for single-family housing starts, which will begin to pull back later this year, Dietz said.
Stronger underwriting standards
Experts agree that even if there is a price correction, it will not be as drastic in magnitude as the 2007-09. the housing crisis.
In the years leading up to 2008, mortgage lenders made subprime loans to borrowers without verified income or equivalent down payments while pushing risky loan products. This time around, tough lending standards are the norm even with low interest rates, experts say.
Swapna Venugopal Ramaswamy is USA TODAY’s housing and economy reporter. You can follow him on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.
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