The Housing Market Index, a closely watched industry metric that gauges the outlook for home sales, declined to 33 in November on a hundred-point scale. Under 50 spells trouble, Hill writer Daniel De Vise writes.
A month earlier, interest rates on a standard 30-year mortgage passed 7 percent, capping the largest single-year increase in at least 50 years.
“Just to give you a sense of how far we’ve come, we started the year around 3 percent,” said Michael Fratantoni, chief economist at the Mortgage Bankers Association. “It has just been a wild ride.”
The difference between a 3 percent interest rate and a 7 percent rate amounts to $1,000 more in a monthly mortgage payment on a mid-priced American home, according to Nadia Evangelou, senior economist at the National Association of Realtors.
This is driven by high inflation causing the Fed to raise interest rates sharply, which correspondingly increases mortgage costs, writes Forbes.
Interest rates have retreated to 6.3 percent this month which gives housing some hope.
The Atlanta Fed tracks this and sees housing affordability at very low levels compared to recent history. In fact, housing affordability is at the lowest level since the Atlanta Fed started tracking it in 2006.
House prices are sliding, but have not collapsed. Redfin house price data suggests house prices have been in decline since May 2022, though prices remain up 5% year-on-year, down from 15% annual price increases over the summer.
We haven’t seen absolute house price declines on an annual basis in most markets, but that could be coming over the next few months
After an unprecedented campaign of rate hikes, Federal Reserve Chairman Jerome Powell has signaled that the central bank will ease up.
Where the housing market goes, the broader economy follows. Dietz, Fratantoni and others in the industry expect the nation to tip into recession, a state of economic malaise generally defined as two successive quarters of decline.
“The housing market leads the U.S. into recession, and it’s likely to pull it out,” Fratantoni said, with recovery arriving around the middle of next year.
A small percentage of homeowners, around 1 in 10, may be in trouble. They hold adjustable-rate mortgages that will shortly adjust to current rates, if they haven’t already.
“Those people are gonna get hit,” said Steven Carvell, professor of finance at Cornell University.
“To be sure, we’re going to see an uptick in foreclosures,” Dietz said. “But we’re not expecting it anywhere on the scale of last time.”
WE ARE ON THE EDGE OF A SWAMP RECESSION
David Kelly, chief global strategist for JPMorgan Asset Management, called it a “‘swamp’ recession” in a note, suggesting the “economy would likely struggle to get out of” what is potentially a mild recession.
“We are on the edge of a recession, we think, and the recession is quite possible in 2023, but it’s not like standing on the edge of a cliff. It’s like standing on the edge of a swamp,” Kelly told Insider.
Kelly added in a “bad” recession, vehicle sales, inventories, and housing starts drop to low levels and need to be rebuilt, in turn helping the economy rapidly grow. If these areas don’t fall by a lot though, then they won’t need to recover much.
“And because of that, those cyclical sectors of the economy aren’t likely to rebound very strongly because they never fell very far in the first place,” Kelly said.
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