What Are Economists Saying About the Housing Market - Two Views

Guest Author: Sana Ahmad (Click here for Real Estate Listings)

The US housing market boomed in 2020 and 2021 as central banks slashed interest rates and people either relocated or moved to newer properties during the pandemic. According to the Case-Shiller index, US home prices soared 40% between February 2020 and April 2022.

The Federal Reserve and other central banks are now hiking interest rates as they grapple with red-hot inflation and as a result, US mortgage applications tumbled to their lowest level since 2000 in the week to July 15.

Economic data paints a picture of housing market that is seeing weaker sales, plunging sentiment among homebuilders, and rising mortgage rates, after two years of red-hot sales. This implies that the market is starting to cool off. 

According to Selma Hepp, deputy economist at CoreLogic, “many housing indicators do point to a recession in the U.S. housing market”. With the Federal Reserve hiking interest rates, housing starts and existing home sales have fallen by 20% this year compared to 2021, Hepp noted. Hepp also added that, “residential investment, the measure of housing-related activity included in GDP, declined at about 12% annual rate in the second quarter”. 

Pantheon Macro estimated that single-family existing home prices dropped by 1.8% in June compared, to a month earlier, following a 0.4% fall in May.

Other economists are more bullish about the housing market. Many analysts have also played down comparisons to 2008, saying banks back then were engaged in much riskier lending practices.

“We are seeing weakness right now in the major housing indicators and we expect the residential sector to be a drag on GDP growth over the next several quarters,” Nancy Vanden Houten, lead U.S. economist at Oxford Economics, said, “but we don’t declare on the basis of that, that the housing market in isolation is in recession.”. Richard Moody, SVP and chief economist at Regions Financial Corporation, agreed with Houten's assesment of the market.

These views, while both data driven, are good news for both buyers and sellers. According to National Association of Realtors, existing homes listed remained on the market for 14 days, which is a record low. This suggests, sellers are still getting good offers, for properties that are positioned correctly and buyers are not expecting bidding wars to ensue. It's a win/win situation for both sides.

Therefore, the best strategy for both buyers and sellers, is to closely work with realtors, who know and continue to understand the market dynamics. We are here to support you and I'm looking forward to helping my clients anyway I can.