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The housing market is in recession. What does it mean?

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If you’ve been paying attention to the US housing market, you’ve probably noticed that words like “correction” and “recession” are coming up more and more often.

Earlier this week, National Home Builders Association CEO Jerry Howard warned Fox Business about Varney & Co. “Tough times” ahead for home builders as data continues to show a slowdown in the national housing market.

And as homebuilder confidence tumbles — hitting its lowest point since May 2022, according to the NAHB/Wells Fargo Housing Market Index released Monday — Howard said the outlook looks bleak.

“It’s been falling for the last seven months in a row, and it’s a huge drop – and I think all it says is, ‘Someone do something, or we’re going into a recession,'” Howard told Varney. & Co.”

Then on Wednesday, Fortune said the housing market was entering a “recession” or “shrinking” as housing construction dwindled and the existing stock of housing increased as higher mortgage rates stifle demand.

So what does today’s housing “downturn” look like? No, we are not in “Great Recession” territory, as we were after the housing bubble burst in 2006 and the risky lending practices of banks collapsed, causing the global economy to collapse.

Rather, in today’s context – after more than two years of seemingly insatiable housing demand after the COVID-19 pandemic sent the market into a frenzy, especially in the West – a “recession” is much more like a “correction”, which could be good news. for homebuyers if they hope price increases will at least level off, or even possibly slow down.

The latest gauge of the US housing market

“The peak of euphoria is over. We are bringing back some of the (home) pricing euphoria that has swept through every housing market,” Rick Palacios Jr., head of research at John Burns Real Estate Consulting, which advises both builders and investors, told Fortune.

Across the country, despite being halfway through peak summer shopping season, home sales this year have fallen from 2021 levels. According to the RE/MAX June National Housing Report released this week, June saw the highest number of home sales for any month this year, topping May by 4.7%, but they still fell almost 18% compared to with figures from June 2021.

By numbers: The national inventory is growing. The RE/MAX report said it rose for the third month in a row in June, up a “whopping” 34.1% from May and 27.5% from last year.

Meanwhile, the rise in prices is slowing down, but has not stopped. While the US $428,000 average selling price is up 11% year-on-year, it is up just 0.6% from May.

What they say: “The market is moving towards greater equilibrium, especially with stocks rising and prices slowing down. The past few years have been one of the most competitive periods for buyers – and we are finally seeing conditions ease up,” Nick Bailey, President and CEO of RE/MAX, said in a prepared statement.

Bailey said this was partly due to higher mortgage rates amid the Federal Reserve’s struggle with inflation, “but even more significant is the increase in listings after years of flash sales and low inventories.”

As for housing markets, which have been heating up especially during the pandemic as Americans have reevaluated their lives and have been looking for more space at lower prices, we are indeed seeing an impact, especially in the West.

States such as Idaho, Arizona, Nevada and, yes, Utah are the epicenter of this changing housing market dynamics – and they are already showing signs of what this housing “recession”, “correction” or “downsizing” could mean.

Vibrant Markets in the West: Boise, Idaho.

The West is full of what Fortune called “living” regional markets, or areas where demand has skyrocketed since COVID-19 sparked a housing frenzy that is more spacious and more affordable than big city areas such as like San Francisco, Seattle or New York.

A big beneficiary of the work-from-home hype was “undoubtedly Boise,” writes Fortune, where house prices jumped 53%. “You could even call it epitomizing the pandemic housing boom.”

Utah wasn’t far behind, and home prices were already rising rapidly as the fast-growing state struggled with years of housing shortages even before the pandemic.

But now that “honeymoon” with buying a home to work from home, as Fortune put it, is over. Higher mortgage rates have indeed dampened demand, especially in Boise, where home sales are down 28% year on year and home inventories are up 161% this year. Zillow estimates also show that Boise’s median home sales price actually fell 3.5% in June.

Now what? “The slide down in Boise has just begun,” Fortune reports, according to Palacios, whose firm forecasts Boise home prices to turn negative year-on-year in December. “For this to happen, Boise had to not only lose all of its 2022 gains, which is already starting to happen, but also fall below the December 2021 price.”

“There is a strong case to be made that in many housing markets the last 10% increase in home prices was purely desirable and irrational, and it will go crazy very quickly,” Palacios told Fortune. “That’s exactly what we’re all seeing right now.”

Nevada: The Las Vegas housing market has also been hit hard. Its housing market topped June’s RE/MAX list for markets with the largest annual increase in monthly home supply, up more than 208%.

Utah: The Salt Lake City Market is just behind Las Vegas as the No. 2 market with the largest home offering of the month. Inventory here is up more than 196% and closing transactions are down more than 27%, according to RE/MAX.

Arizona: On the third place? Phoenix, where the supply of houses increased by 187% in a month. In fourth place, Bozeman, Montana saw an increase of 185.5% in inventories.

Where is the market heading?

Moody’s Analytics predicts US home prices will level off by this time next year, while “overvalued” housing markets like Boise could see prices drop by up to 10% over the next year. If the economy enters a recession, US house prices could fall by 5%, and markets like Boise could fall by more than 20%, according to Moody’s Analytics, according to Fortune.

John Burns Real Estate Consulting has a more cynical forecast: U.S. home prices will fall in 2023 and 2024, with the largest price drop in Boise; Phoenix; Nashville Tennessee; West Palm Beach, Florida; Las Vegas; Port St. Lucie, Florida; Riverside, California; Fort Myers, Florida; Austin; and Visalia, California, according to Fortune.

Utah is overrated? While Moody’s Analytics doesn’t see Utah’s regional markets as overvalued as Boise, they are still on their radar. Regional Ogden is overvalued by more than 50%, according to Fortune’s analysis of Moody’s data, Salt Lake County is overvalued by 32% and Provo-Orem is overvalued by 20%.

While sales here in Utah are also slowing down, the state is still battling a housing shortage and housing experts here say it will be difficult to understand the sharp decline in prices, but as the market slows and sales have fallen, we may see prices are at least leveling out, or at least dropping a bit.

Most Utah home sellers are already cutting prices as they adjust to buyers’ crunch point, and sales continue to fall. June marked the 13th consecutive month in which Salt Lake County sales fell year-over-year. If the market reaches 18 months, then an actual price decline seems more likely.


#housing #market #recession

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