Did We Miss The Housing Recession?
🚀 The quick version: The housing market has been sluggish and hasn’t seen its typical spring and summer boom this year.
Recent data is pointing to a market that is ready to rebound. Here are the details:
Existing homeowners can’t sell (for now). Existing home sales for June fell about 19% from last year (the slowest pace since June 09’) as sellers continue to be reluctant to give up 3% mortgage rates for something now closer to 7%. Consumer confidence and savings rates remain favorable however, telling us that maybe we are near the bottom.
Homebuilders are turning optimistic. The lack of existing home sales is creating an opportunity for homebuilders to increase supply of new homes. They are starting to take advantage with single family housing permits for June increasing 2.2% (largest in over a year). Also the National Association of Home Builders/Wells Fargo Housing Market index (a monthly survey of homebuilders) indicated homebuilder optimism hitting a 13 month high.
Companies seeing a better 2H and 2024. Companies like Zillow, Redfin and Realtor.com recently released reports covering their outlook on single family housing— all seeing increased pockets of market strength. Home prices seem to be holding, and they all think we see lower mortgage rates (likely 6% vs. about 7% today) by the end of the year which could entice existing homeowners back to the market.
Banks (starting) to turn more positive. Several large banks reported quarterly earnings recently including Wells Fargo, the nations largest bank mortgage lender. When talking about lending conditions, CEOs on the whole were hopeful that a near plateauing of interest rates would start to improve the housing market later this year and into 2024.
👪 How it affects your family: The one common indicator to watch from here are interest rates. If they stabilize in the 2H of the year (we think they will) and into next year even possibly start to come down, we would expect a short lived lull and a national rebound in the housing market.
Here are some things you can do today depending on your situation:
Buyers: look at options to pay lower rates. If you are a buyer and can’t wait to make a purchase, we would look closely at adjustable rate mortgage options or other ways to buy down your rate today. We are willing to bet that interest rates are lower a year or two from today.
Buyers: think about a new vs. existing home. With homebuilders about to ramp up supply, if you are a buyer we would consider looking at new homes vs. existing ones. You will be in a stronger bargaining position as homebuilders need to sell their inventory. We are already seeing some signs of buyer bargaining power as builders are starting to offer buyers ways to effectively pay lower mortgage rates. The reason they are doing this is so that they don’t have to lower the home sale price (if a builder lowers the price on one house then they likely have to mark down the rest of their portfolio- no bueno).
Sellers: maybe use spare cash for a renovation. As a seller, If you want to wait for a likely better housing market in 2024 or lower mortgage rates, now may be a good time to look at using spare cash to do a value enhancing home renovation as you get ready to sell (check out our discussion on home equity loans).
Everyone: think about establishing a living trust. If you don’t have a lot of urgency to do anything with your home at the moment but know you want to leave your home to your kids, now would be a great time to set up a living trust so they don’t have to deal with probate court (as we explained last week).
