Jerry Howard, CEO of the National Association of Home Builders, broke down the April housing market index, which showed that new home starts rose slightly.
The US housing market is slowly coming back to life after entering a deep freeze in mid-2022, but the worst may not be over yet for the sector.
Fannie Mae economists predicted in a revised forecast that the housing market slump could accelerate again later this year as tighter credit conditions squeeze buyers, sellers and builders.
Residential fixed investment, which accounts for about 5% of total GDP and measures construction of new housing structures, residential remodeling and production of manufactured homes, has already declined in the first two quarters of 2023 and through the beginning of next year The decline is projected to continue.
While construction of multifamily housing structures has proven “surprisingly resilient in recent months,” Fannie Mae economists are still forecasting a “major slowdown in activity” later this year. Rent growth has moderated over the past year – or declined outright while vacancy rates are also slowly rising.
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The US housing market is slowly coming back to life after entering a deep freeze in mid-2022, but the worst may not be over yet for the sector. (Nathan Howard / Bloomberg via Getty Images / Getty Images)
“There is a record number of multifamily units currently under construction, with more scheduled to come online later this year and into 2024,” the analysts wrote in the report. “Combined with tighter credit to construction lending, which we expect will soon be felt by a slower new project pipeline, we are expecting a significant slowdown in starts later this year.”
According to Fannie Mae, the downturn in the housing market could soon spread to the broader economy. The analysis shows the US entering a recession in the second half of 2023, with a sustained GDP decline through the first quarter of 2024.
For months, high mortgage rates have dampened consumer demand and brought down House prices, As rates have gradually fallen from their peak of 7%, the housing market has shown early signs of bustling back to life.
“A modest recession is the most likely outcome – and its timing remains the major outstanding question – as the Fed is likely to maintain accommodative policy for an extended period of time if wage-related inflationary pressures do not subside,” they wrote.
Interest-rate-sensitive housing market has cooled rapidly of the Federal Reserve aggressive interest rate hike campaign
The economist who called the housing crash in 2008 predicted a 15% drop in home prices
Policymakers have raised the benchmark federal funds rate 10 times in a row as they try to crush stubborn inflation and cool the economy.
The interest-rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve’s aggressive interest-rate hike campaign. (Yuvraj Khanna/Bloomberg via Getty Images/Getty Images)
However, the return to declining mortgage rates has not been smooth. In fact, rates moved significantly higher to start the week, with the average rate on the popular 30-year mortgage climbing from 6.59% to 6.69%, according to a separate survey by Mortgage News Daily.
Those rates are significantly higher than just a year ago, when rates were around 5%.
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Limited inventory this month has also pushed up demand and prices.
A recent report by Realtor.com showed that the number of homes available on the market in March is down more than 50% from the normal amount before the COVID-19 pandemic began in early 2020.
In fact, Fannie Mae economists said that a lack of resale inventory would actually prevent the housing market from sliding into a deep recession — and prevent a national home price crash.
Fannie Mae economist Doug Duncan recently wrote, “Even though mortgage rates have risen compared to the past few years, an acute shortage of housing supply is supporting home prices.” “Certainly, the shortage of homes for sale is currently exacerbated by the so-called ‘lock-in effect,’ which continues to discourage large numbers of households with low mortgage rates from listing their homes.”