Dawn Allcot
·2 min read
The U.S. housing market has seen prices drop year-over-year for three months, beginning in February 2023. It was the first housing price drop in 11 years, according to National Association of Realtors data. Home sales also declined by 3.4% between March 2023 and April 2023.
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Experts at Fannie Mae’s Economic and Strategic Research (ESR) Group believe that the housing market downturn could lead to a “modest recession” overall in the second half of 2023. If wage-related inflation continues, the Fed is likely to maintain its tight grip on economic policies. “Inflation has been resistant to Fed efforts to drive it down, and we view the risks to our baseline forecast as tilted toward more tightening rather than easing — although, for the moment, the Fed has adopted a wait-and-see approach, said Doug Duncan, Senior Vice President and Chief Economist, Fannie Mae, in a press release.
With mortgage interest rates over 6% right now, according to Forbes, many homeowners aren’t willing to sell. This is creating a tight inventory, or what Fannie Mae calls “a lock-in effect.” Homeowners have mortgage rates well below today’s rates. With the uncertainty in the market, homeowners are holding onto their houses, and exacerbating low inventory challenges, which could slow the decline of prices.
With fewer existing homes on the market, prospective buyers are turning to new homes, according to the ESR Group’s report. Overall, that’s good for the economy as it shows builder confidence.
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“Housing remains exhibit number one for why we expect the recession to be modest. It continues to outperform our expectations, and we expect that its relative strength will help kickstart the economy into expanding again in 2024,” Duncan noted.
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This article originally appeared on GOBankingRates.com: Housing Market 2023: When Will the Housing Market Recession End and What’s the Impact on the Broader Economy?
As an enthusiast and expert in real estate and economic trends, it's clear that the U.S. housing market is currently experiencing a significant shift, marked by a rare occurrence of a year-over-year price drop for three consecutive months, starting from February 2023. This is a noteworthy development, especially given that it marks the first housing price decline in 11 years, as reported by the National Association of Realtors.
One key aspect to consider is the decline in home sales by 3.4% between March 2023 and April 2023. This data points to a potential weakening demand in the market, which is crucial in understanding the broader economic implications.
Evidence and insights from Fannie Mae's Economic and Strategic Research (ESR) Group further emphasize the seriousness of the situation. The experts at Fannie Mae believe that the housing market downturn could lead to a "modest recession" in the second half of 2023. This is a significant statement backed by their in-depth economic analysis.
The mention of wage-related inflation and the Federal Reserve's cautious approach adds a layer of complexity to the situation. The statement by Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae, highlights the challenge of inflation resisting efforts to drive it down. This could potentially lead to the Fed maintaining a tight grip on economic policies.
Mortgage interest rates, currently over 6%, as reported by Forbes, play a crucial role in the dynamics of the housing market. The information suggests that high-interest rates are discouraging homeowners from selling, creating a "lock-in effect." Homeowners with lower mortgage rates are hesitant to enter the market, contributing to the challenge of low inventory.
The scarcity of existing homes on the market is pushing prospective buyers towards new homes, according to the ESR Group's report. This shift is seen as a positive indicator for the economy, showcasing builder confidence.
Despite the challenges, there's optimism regarding the resilience of the housing market. The quote from Doug Duncan underscores the importance of the housing sector, describing it as "exhibit number one" for why a modest recession is expected. The relative strength of the housing market is anticipated to contribute to economic expansion in 2024.
In conclusion, the current state of the U.S. housing market is a multifaceted issue with implications for the broader economy. Factors such as declining prices, reduced home sales, inflation concerns, and high mortgage interest rates contribute to a complex landscape that requires careful consideration for both homeowners and prospective buyers.
