Home News The housing market enters into recession—here’s what to expect next

The housing market enters into recession—here’s what to expect next

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Housing cycle —Started to rise in 2011— Officially handed over. Simply put, we have fallen into a housing recession.

On Tuesday we learned it Homebuilders started construction of 982,000 detached homes in June.. This is a 19% decrease from February and a 16% decrease from the same month in 2021. There is little “blow-off”, but it’s clear that builders are reducing it. Historically, that’s exactly what happens when the housing cycle is overturned. Existing housing inventoryAs builders start to compete, home builders begin to cut.

“Peak Euphoria is behind us. We are returning part of Euphoria [home] Pricing applied to all housing markets, “said Rick Palacios Jr., Head of Research at John Barnes Real Estate Consulting.

Existing home inventories will continue to grow and home construction will continue to slow. At least that’s the view of John Barnes Real Estate Consulting, which provides consulting services for both builders and investors. As it is, the ongoing housing recession (ie, the shrinking housing market) can push down housing prices in the housing market in vibrant regions. Indeed, many cheerful markets are heading towards price cuts in both 2023 and 2024, says Palacios. This includes markets such as Phoenix, Nashville, West Palm Beach, Las Vegas and Austin. Boise states that Palacios could be negative year-over-year as soon as home prices reach December.

“The builder is already [deciding] Avoid pouring slabs in certain markets. This is a technical opportunity to start a home. In certain markets [a housing bust]”Palacios says.

View this interactive chart on Fortune.com

Immediately after the mortgage rate surged this spring, the housing market “Housing correction”. It’s easy to understand how those higher rates priced many potential buyers. If the borrower borrows a $ 500,000 mortgage at a rate of 3.1% in December, the monthly principal and interest payments will be $ 2,135.If the Borrower Borrows a $ 500,000 Mortgage Today Average 30-year fixed mortgage rate (5.51%)They receive a payment of $ 2,839.

This housing recession has hit the coast-to-coast market, but it is less uniform. It has hit the mountain west, west coast and south west housing markets particularly hard. Look at changes in inventory levels. Over the last six months, home inventories have surged 247% in Denver, compared to just 18% in Pittsburgh. Not far from Denver are Austin (220%), Colorado Springs (195%), Stockton, California (175%) and Boise (161%).

what happened?These western housing markets also happen to be One of the most “overvalued” markets in the country.. As the pandemic housing boom intensified over the last two years, many of these markets, which were more constrained in terms of supply, saw tremendous rises in home prices. In Boise, home prices have risen tremendously by 53% over the last two years. It has brought home prices there, far beyond what the economic fundamentals of the market have historically supported. actually, Moody’s Analytics considers it the most “overvalued” market in the country.

Next year, Moody’s Analytics Significantly “overvalued” home markets like Boise and Austin see home prices fall 5% to 10%.. Nationally, Moody’s Analytics expects home prices to grow at 0% year-over-year.However, Moody’s Analytics predicts in the event of a recession In a significantly “overvalued” housing market, home prices can fall by 15% to 20% Meanwhile, home prices across the country will fall by about 5%.

View this interactive chart on Fortune.com

There is another reason why cheerful markets like Austin and Phoenix are shrinking faster: Investors.

Investors poured into the U.S. housing market The last two years.There was a small player like Airbnb Host, mom and pop landlord. Home flipper is back..There was also an institutional type Like a black stone And like the iBuyer player Zillow.. What is their favorite locale? A popular housing market throughout Mountain West, South West and South East.

But as the housing markets in these boomtowns begin to shrink, they will be the first markets for investors to run for exit.

“Investors sometimes move to herds. If Phoenix real estate is no longer a cool investment in 2022, it can have a big and quick impact on home sales. Phoenix-based independent real estate Analysts luck..

View this interactive chart on Fortune.com

this Of course, the housing recession is all by design..

Earlier this year, the Federal Reserve shifted from quantitative easing (ie buying bonds) to quantitative tightening (ie selling bonds). Soon, financial markets pushed up interest rates on both 10-year finance and mortgages. That’s exactly what the Fed wanted. When the mortgage interest rate risesIt will cause Pandemic housing boom— This helped promote higher inflation — failed.

“If you’re a home buyer, someone, or a young person trying to buy a home, you need a little reset.. We need to return to where supply and demand will recover, inflation will fall again, and mortgage rates will fall again. ” Federal Reserve Chairman Jerome Powell told reporters in June...

According to Palacios, the “reset” of that federal home actually means a “fall in home prices.” While the Federal Reserve didn’t say that directly, Palacios says much of the industry believes it’s just what comes next.

Palacios says the ongoing housing contraction, coupled with the determined Fed, is the perfect recipe for a recession. Historically, the Fed-induced recession begins in interest-rate-sensitive sectors such as housing. It usually looks like this. As soon as mortgage rates soar, home sales decline. After that, inventories will increase sharply and homebuilders will shrink. The next demand for both commodities and consumer durables will decline. of course, Housing recession also brings layoffs..

“Lessons learned from reading [Paul] Volcker’s work, that’s where they are [the Fed] Extremely [in the 1970s].. If you have this red light green light spirit around inflation, you will allow the psychology of inflation to come before you … you listened to the Fed over last month or so If you tilt, it’s what they are, and I was very surprised, “says Palacios.

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This story was originally featured Fortune.com

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