Home News Why housing has ‘a lot of wiggle room’ in a recession, even if prices drop 15%

Why housing has ‘a lot of wiggle room’ in a recession, even if prices drop 15%

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Mortgage rates, which hit a 20-year high this week, are unlikely to crash the US housing market, according to Armada ETF Advisors’ HAUS portfolio manager Al Otero.

Instead, a strong job environment and a huge stock cushion that homeowners have been sitting on after two years of strong price gains give the housing market plenty of room to wiggle “even if it pushes us into a recession.” I said on the phone that I would.

“I think the housing market is going up so fast that it could take a pretty big hit. He added that a 10% to 15% drop in home prices wouldn’t necessarily be a bad thing after a 45% surge in prices.

In some markets, such as Tampa and Phoenix, these increases approached 71%, according to Black Knight data.

“If you’re someone who bought a house recently, it stinks because it takes a little longer to get out on the water,” Otello said. He sees housing as healthier than it was a decade ago, when the global financial crisis accelerated and a new class of institutional investors emerged.

House prices seem to have peaked, but in the new housing era, Otero believes there’s still a “runway where rents continue to rise.” His Fund, Home Appreciation US REIT ETF
House,
+1.24%
,
Launched in March, it invests in shares of publicly traded companies that own apartment and single-family rentals, including Equity Residential.
EQR,
+1.51%

and American Homes 4 Rent
AMH,
+0.34%
.

REITs tend to be sensitive to rising interest rates, with the HAUS ETF down about 10.3% in September, while the S&P 500 Index is down about 8%.
SPX,
-1.51%
,
According to FactSet data.

Still, Morgan Stanley analysts said earlier this month they expected rising interest rates and a housing shortage would “push households into the rental market.”

look: Most economists see the US as a buyer’s housing market in 2023..

$6.5 trillion at risk

Home prices have retreated slightly from record levels, and 30-year fixed mortgage rates have more than doubled this year. almost to 7% more families will have their home ownership frozen.

Nancy Vanden Houten, chief U.S. economist at Oxford Economics, said the surge in mortgage rates has resulted in about 18 million fewer households qualifying for a median existing home mortgage compared to the end of 2021. (see graph).

An estimated 18 million households were left without mortgages, and interest rates approached 7%.

oxford economics

Risks of a housing and economic downturn have risen as the Federal Reserve (Fed) has sharply raised interest rates to curb inflation near a 40-year high, but its efforts are stubbornly backed by a high haven. It is complicated by the cost.

look: High rents and Fed inflation fight to push key mortgage rates above 7%: BofA Global

Vanden Houten said he thought a home crash was “unlikely” but said $6.2 trillion in home wealth would be lost if house prices were less likely to fall by 15%. Pandemic.

But on the bright side, the relative stability of mortgage debt levels over the past decade suggests that under that scenario, US households still hold about 65% of real estate. I mean

Being a renter can be tough, Otero said, but “given where home prices have gone, renting is more economically advantageous than buying a home in most markets.” increase.

Plus, with rental occupancy rates near 96% nationwide, renters have little choice but to pay.

“The biggest risk for landlords is the job market,” says Otero. “Even if they are stretched like consumers, fortunately they are still employed and wages continue to rise.”

read: Fed must try to avoid ‘severe recession’, Daly says

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