Recent data from the National Association of Realtors (NAR) has led a top real estate economist to declare that the housing recession in the US is officially over. According to NAR’s chief economist, Lawrence Yun, the recovery is yet to take place, but the housing sector’s downturn has come to an end. The increase in pending home sales for June, rising by 0.3%, suggests a positive shift in the market.
Yun explained that the presence of multiple offers on properties indicates strong housing demand, which is currently being hindered by a lack of supply. However, he also pointed out that homebuilders are responding to the rising demand by increasing production and hiring workers.
The Pending Home Sales Index, which is based on contract signings, saw a slight boost to 76.8, though it remains 15.6% lower compared to the same period last year. For reference, a rating of 100 corresponds to the contract activity seen in 2001.
As the year progresses, the NAR anticipates that the 30-year fixed-rate mortgage will climb to 6.4%, and then slightly drop to 6.0% in 2024. The current near-7% mortgage rates have discouraged some existing homeowners from moving, and they have also deterred potential homebuyers.
Experts from Moody’s echoed this sentiment, stating in a separate July note that higher rates will continue to impact homebuyers for the foreseeable future, as central banks are likely to maintain tight monetary policies.
Looking ahead, Yun predicts that unemployment will rise to 3.7% by the end of 2023 and then further increase to 4.1% next year.
Nevertheless, Yun also expressed hope that with consumer price inflation stabilizing and mortgage rates reaching their peak, a meaningful decline in rates could trigger a surge in homebuyer activity later this year and into the next.
However, despite some fluctuations in home prices, the tight housing inventory has limited improvements in affordability. While data from Case-Shiller indicates that home prices in June experienced their most significant annual drop since 2012, they have still seen steady climbs for four consecutive months. All 20 major metro markets reported monthly price gains for the third consecutive month.
The new housing data was released a day after the Federal Reserve announced a 25 basis-point rate hike, bringing the federal funds rate to a range of 5.25%-5.5%. The market largely expects this to be the final rate adjustment for the year before the Federal Reserve potentially eases its monetary policy in 2024.
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