The housing market is entering a recession. what does that mean?

If you pay attention to the US housing market, you’ve probably seen words like “correction” and “recession” appear more and more often.

Earlier this week, the CEO of the National Association of Home Builders, Jerry Howard, warned Varney & Co. A ‘tough time’ awaits homebuilders as data continues to show a slowdown in the national housing market.

And with homebuilders’ confidence plunging — hitting its lowest reading since May 2022, according to the NAHB/Wells Fargo Housing Market Index released Monday — Howard said the outlook looks bleak.

“For the last seven months in a row, it’s been going downhill and that’s a big drop — and I think all he’s saying is, ‘Someone is doing something or we’re going to go into a recession,'” Howard said.

Then, on Wednesday, Fortune announced that the housing market is entering a “recession,” or it is “shrinking” as home construction shrinks and existing home inventories have risen as rising mortgage rates stifle demand.

So what does a housing “stagnation” look like today? No, we are not in the “Great Recession” like after the 2006 housing bubble burst and the risky lending practices of banks collapsed, causing the global economy to collapse.

Instead, in today’s context – after more than two years of what appeared to be an insatiable demand for housing after the COVID-19 pandemic drove the market into a frenzy, especially in the West – a “recession” looks a lot like a “correction,” which It could be good news for homebuyers if they are hoping for price growth to at least stabilize or perhaps even slow.

The latest gauge of the US housing market

“The euphoria peak is behind us. We’re bringing back some of the euphoria (home) prices that have been circulating in every housing market,” Rick Palacios Jr., head of research at John Burns Real Estate Consulting, which advises both builders and investors, told Fortune.

Nationwide, even though we’re halfway to the height of the summer shopping season, home sales for this year are down compared to 2021 levels. June recorded the largest home sales of any month so far this year, outpacing May by 4.7%, but it’s still It’s down nearly 18% from the June 2021 numbers, according to RE/MAX’s June National Housing Report released this week.

In numbers: The national stock is increasing. It inflated for the third consecutive month in June – up “enormous” by 34.1% from May and 27.5% from a year ago, according to a RE/MAX report.

Meanwhile, price growth is slowing – but not stopping. While the average US sales price of $428,000 is up 11% year over year, this is only a 0.6% increase compared to May.

what are they sayingThe past few years have been one of the most competitive times ever for buyers — and we’re finally seeing conditions improve,” said Nick Bailey, president and CEO of RE/MAX, in a prepared statement. .

This is partly due to higher mortgage rates amid the Fed’s battle with inflation, Bailey said, “but more importantly the increase in listings after several years of spot sales and low inventory.”

For housing markets that have been particularly glowing during the pandemic as Americans reevaluate their lives and search for more space at lower price points, we’re really seeing the impact, especially the West.

States like Idaho, Arizona, Nevada, and yes, Utah are ground zero in the changing housing market dynamics—and they’re already showing signs of what a “stagnation,” “correction,” or “deflation” in housing could mean.

Bubbly Markets in the West: Boise, Idaho

The West is filled with what Fortune has dubbed “champagne” regional markets, or areas that saw a surge in demand after COVID-19 sparked a housing craze that was more spacious and affordable than areas of big cities like San Francisco, Seattle or New York.

The biggest beneficiary of the rush to work from home on housing, Fortune wrote, was “undoubtedly Boise,” with home prices up 53%. “You could even call it the poster child of the pandemic housing boom.”

Utah wasn’t far behind, and home prices were already rising rapidly as the fast-growing state had been struggling with a housing shortage for years even before the pandemic.

But now, that the “honeymoon” is over, he’s working from home, as Fortune magazine described him. Already high mortgage rates have dampened demand, especially in Boise, where home sales are down 28% year over year and inventory is up 161% this year. Zillow’s estimates also show that the median home sale price in Boise actually fell 3.5% in June.

What now? “This downward slump in Boise is just beginning,” said Palacios, whose housing prices for the company’s projects will turn negative in Boise year after year in December. For that to happen, Boise would not only have to lose all of its gains in 2022 – which have already started – but also fall below its December 2021 price tag.

“You can make a strong case that in a lot of the housing markets, the last 10% of house price hikes have been completely ambitious and illogical, and that is going to come to the top really fast,” Palacios told Fortune. “That’s exactly what we’re all seeing now.”

Nevada: The Las Vegas housing market has also been hit hard. Its real estate market topped the RE/MAX markets list for June with the largest annual increase in the supply of homes – an increase of more than 208%.

Utah: The Salt Lake City Market is right behind Las Vegas as the No. 2 market with the biggest bump to supplying months of homes. Stocks here are up more than 196%, yet closing transactions are down more than 27%, according to RE/MAX.

Arizona: In third place? Phoenix, which has seen an 187% increase in home supply for its months. In fourth place, Bozeman, Montana, saw an increase of 185.5% in inventory.

Where is the market heading?

Moody’s Analytics has predicted that US home prices will stabilize by this time next year, while “overvalued” housing markets like Boise could see prices fall as much as 10% over the next year. If the economy enters a recession, Moody’s Analytics predicts that US home prices could actually fall 5% and markets like Boise could see a 20% drop, Fortune reports.

John Burns, a real estate consultancy, has a more pessimistic forecast, predicting that US home prices will fall in 2023 and 2024, with the largest price declines in Boise; Phoenix. Nashville Tennessee West Palm Beach, Florida; Las vigas; Port St. Lucy, Florida; Riverside, California; Fort Myers, Florida; Austin; and Visalia, California, Fortune.

Is Utah overrated? While Moody’s Analytics doesn’t associate Utah’s regional markets with overvalued like Boise, it’s still on their radar. The regional market in Ogden is overvalued at more than 50%, according to a Fortune analysis of Moody’s data, the Salt Lake County market is overvalued at 32%, and Provo-Orem is overvalued at 20%.

While sales are slowing here in Utah as well, the state is still grappling with a housing shortage as housing experts here say it will be hard to fathom the dramatic drop in prices — but with the market slowing and sales dropping, we could see prices at least lower or lower. At least a little lower.

A large portion of Utah home sellers are already lowering their prices as they adjust to buyers’ breaking points and sales continue to fall. June was the thirteenth consecutive month, in which Salt Lake County sales fell year-over-year. If the market reaches 18 months, the actual price is likely to fall.

Leave a Reply

%d bloggers like this: