Housing Market Crash Averted? Perhaps — But Not So Fast, Experts Say

Real estate agent showing a house for sale to a couple and pointing outside - home ownership concepts.
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Much of the data surrounding this year’s housing market points toward a delicate recovery period — perhaps softening the pain of continued Fed rate increases. While signs are pointing upward, there are plenty of reasons why economists remain cautious of these developments.

Key Data Points

In the face of a looming recession, a potential eleventh consecutive rate hike and steady inflation, it may be too soon to call a housing market recovery. However, that certainly doesn’t entail a crash. Talks of a housing market crash have been dampened by key points that suggest that the housing market is on its way up:

  • Average 30-year mortgage rates have declined slightly from their peak of 7.08% in October of 2022 despite Fed rates increasing. Mortgage rates are beginning to level out at 6.81% as of July 6, per the St. Louis Fed.
  • A June 27th release from Craig J. Lazarra, managing director of the S&P DJI, stated: “The National Composite [of home prices] rose by 1.3% in April (repeating March’s performance) and now stands only 2.4% below its June 2022 peak.” 
  • U.S. Census Bureau data indicated that the number of home sales has increased month over month from 625,000 in February to 763,000 in May.

Factors Affecting Recovery

There are still other factors that could challenge a budding recovery. Demand for homeownership remains strong, with a recent housing survey from the Federal Reserve Bank of New York reporting 69.7% of renters would prefer or strongly prefer owning a home. However, the housing supply is still struggling to meet those demands.

Slashed rates on mortgages and refinances during Fed rate cuts throughout the pandemic left many homeowners unwilling to sacrifice 2% to 4% rates to accept a near 7% or higher mortgage rate on a new home. To combat the lack of inventory, many potential home buyers are stretching their budgets to pursue new construction instead.

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New construction home builders are supporting the increase in housing supply, including industry leaders like Lennar Homes. In a second-quarter earnings call, Lennar Homes executive chairman Stuart Miller stated:

“… The economic environment has stabilized as customers have adjusted to and accepted higher-for-longer interest rates, the supply chain chaos has normalized, inventories have remained low, and the supply of housing across the country is in very limited supply.”

So — homebuyers willing to accept higher interest rates could face high competition, as well.

In an interview with MarketWatch, Redfin’s deputy chief economist, Taylor Marr, suggested there’s still a lot of economic uncertainty ahead deterring the announcement of a true recovery. Marr also added, “If the economy really takes a turn three or four months from now for whatever reason, it could certainly bring the housing market back lower than it was even last November.”

On the Housing Market in General

The housing market isn’t in recovery mode just yet, but several data points suggest that it could be in the making. While this is good news for the economy, persistent homebuyers will still be battling high mortgage rates, limited inventory and high competition. Until signals of a stronger housing market emerge, economists are conservatively holding off on calling a recovery.

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