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Housing Market Stalls As Interest Rates Remain High, Inventory Falls


Recent data shows America’s residential housing market is in trouble. The Economist believes that the situation in the U.S. housing market suggests that a recession is on the way. Many other economists believe the housing market is already in a recession.

According to Redfin.com, U.S. home prices were down in March “3.3% compared to last year, selling for a median price of $400,698. On average, the number of homes sold was down 19.5% year over year.” The number of homes for sale was up 7.1% year-over-year and the number of newly listed homes was down 22.5%. Houses are staying on the market longer — 44 days for homes sold in March — up 23 days year-over-year, per the same report. Fewer homes are coming on to the market and those that are for sale are remaining so for longer periods of time.

In addition, housing starts are down, indicating a future dearth of inventory. Privately-owned housing units authorized by “building permits in March were at a seasonally adjusted annual rate of 1,413,000. This is 8.8 percent below the revised February rate of 1,550,000 and is 24.8 percent below the March 2022 rate of 1,879,000,” per the U.S. Census Bureau. Privately-owned housing starts in March were at a seasonally adjusted “annual rate of 1,420,000 … 17.2 percent below the March 2022 rate of 1,716,000,” per the same report.

A housing market collapse similar to the Great Recession is not likely. The majority of mortgages are fixed rate and are locked in at 5% interest or below, and the credit of homeowners is much stronger than that of homeowners in 2008.

But we are seeing a significant uptick in foreclosure activity. In January 2023, there were a “total of 31,557 U.S. properties with foreclosure filings – default notices, scheduled auctions or bank repossessions – up 36 percent from a year ago,” according to property data company ATTOM.

In addition to the increasing number of foreclosures, more and more people are backing out of their contracts to purchase a home, with approximately 65,000 home purchase agreements falling through in December 2022.

However, we are seeing a tale of two housing markets. While cities like Phoenix, Seattle, San Jose, and San Francisco all saw home prices decline by double digits in 2022, a number of markets saw their housing market heat up to new record levels of pricing and activity. The top five areas with the largest price increases in 2022 were Florida (15.2%), North Carolina (13.4%), South Carolina (12.9%), Hawaii (12.8%), and Maine (12.2%).

A new variable that will likely have an impact on home sales is the new Biden administration rule that will force people with good credit and a large down payment for a home to subsidize the mortgage and fees paid by people with poor credit and a low down payment.

State treasurers and finance officials from 27 states urged the Biden administration to rescind the rule, which took effect on May 1. They wrote to the administration, “the policy will take money from the people who played by the rules and did things right – including millions of hardworking, middle-class Americans who built a good credit score and saved enough to make a strong down payment. Incredibly, those who make down payments of 20 percent or more on their homes will pay the highest fees – one of the most backward incentives imaginable.”

What will happen to the U.S. housing market over the next several months? It will depend on several factors, including what the Federal Reserve does with interest rates during its May meeting. But, if we continue to see a mass migration of Americans fleeing blue states such as California, New York, and Illinois, we will see a tale of two housing markets – collapsing markets in states people leave and white-hot markets in the states to which people move.

Jim Nelles is a Navy veteran and supply chain consultant based in Chicago. His articles have appeared in The Washington Examiner, Newsweek, Foxnews.com, and The Daily Wire. He has served as a chief procurement officer, chief supply chain officer, and chief operations officer for multiple companies.

The views expressed in this piece are those of the author and do not necessarily represent those of The Daily Wire.

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