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The last few years have seen an exploding housing market, with the costs of homes surging amid low inventory, but now, experts say the market has taken a turn, and the U.S. has now entered a housing recession.
“List prices are getting cut but in part I think because there’s a lot of demand still for housing demographically and not enough supply of housing we haven’t seen prices go down,” Ryan Schneider, CEO of Anywhere Real Estate, said.
This is not quite a housing crash. Experts are calling this a housing recession, but massive price drops are unlikely because inventory is still low. However, there’s a consensus that the market is cooling down. The U.S. just came out of a hot housing market. Home prices were sky high and interest rates were low, and people were looking to buy at incredible rates.
Now, interest rates are significantly higher, and the market is responding. Some buyers are canceling their contracts because of interest rates. Existing home sales dropped by 5.9% in July from June, which made it the sixth month in a row of a drop, and that was a 20% decline from the year before.
While first-time homebuyers normally make up around 40% of sales, last month they only made up 29%, which reveals that more people might be hesitant to enter the market for the first time.
New construction is slowing down as well. Sentiment among builders dropped to negative levels in August after eight months of steady decline according to one prominent metric, the National Association of Home Builders/Wells Fargo Housing Market Index.
The Chief Economist at the National Association of Home Builders Robert Dietz said there’s now a housing recession caused by “[t]ighter monetary policy from the Federal Reserve and persistently elevated construction costs.”
Single family home construction was down almost 19% in July compared to last year and building permits were down 12%, which typically resemble future projects.
Housing prices are another factor to watch. Typically, housing prices go up on average between June and July because a lot of families like to move when their kids are out of school for the summer. However, home prices went down almost 1% from June to July, according to Black Knight, which was the first monthly drop in three years — and that was the biggest single-month decline in costs since January of 2011.
Home prices were still higher in July of this year than July of last year, but most of that increase happened in the early part of this year before mortgage interest rates went up. Home prices are dropping much more significantly in certain areas as well. They dropped 10% recently in San Jose, California. Seattle, San Francisco, San Diego, L.A., and Denver all saw drops, too.
Andy Walden, vice president of enterprise research and strategy at Black Knight, says that more price corrections are probably coming, so home buyers and sellers will likely continue to watch this market and see where it goes.