Is the Housing Market About to Take a Tumble in This Challenging Economy?
Rising interest rates and the ongoing threat of a recession would have sent prior housing markets into a slump. However, that is not what is happening in the U.S. heading into the fall of 2023. According to the latest data report from the National Association of Realtors (NAR), the median sale prices of existing homes are trending near historic highs. For instance, home prices in July were up 1.9% from the previous year, coming in at $406,700. This is only the fourth time since the NAR began tracking this statistic that the monthly median has inched over the $400,000 mark.
What does all of this mean for the current housing market? Experts are offering encouragement in their thoughts that the housing market is not going to crash, despite the economic indicators that would predict otherwise. Here are a few of the reasons that housing experts are predicting that the housing market will remain strong.
Inventories Remain Low
According to the NAR, July saw a 3.3-month supply of homes available for sale. This lack of inventory means that prospective home buyers do not have a lot of leeway when negotiating prices. As a result, they will have to compete with each other for the small number of homes on the market. This low inventory also helps to guard against a crash in prices.
Strict Lending Standards
The Great Recession of late 2007 through 2009 taught lenders that they needed to be more strict with their standards when approving potential borrowers, During this time period, borrowers found exceptionally lenient rules. For instance, it was not unusual for applicants to not even be asked to document their income.
Today's lenders learned the lessons offered by this time period and have increased the standards needed to qualify for a mortgage. According to the Federal Reserve bank of New York, the median credit score for borrowers during the second quarter of this year was a comfortable 769. By keeping these standards high, the market is not as likely to crash when borrowers cannot afford their mortgage payments. Properly vetting the applicants will naturally increase the stability of the market even during times of economic uncertainty.
New Demographic of People Entering the Housing Market
In addition to a low amount of inventory, there is also an increased demand for homes thanks to a new demographic of Americans entering the housing market. The Millennial generation is now hitting their prime purchasing years, translating into a greater demand for homes.
The growing Hispanic population in the U.S. is also propping up the market as they look to cash in on the American Dream. Lastly, the increase of people working from home over recent years has prompted more people to look to home ownership as to increase their living space to support home offices.
Decrease in Foreclosures
There is also promising news on the foreclosure front. One of the worst consequences of the housing crash during the Great Recession was the flood of homeowners needing to foreclose on their properties because they could no longer afford their mortgage payments. Today's homeowners enjoy a more sizable equity cushion.
Part of the reason for this lower amount of foreclosures is because lenders did not file as many default notices during the pandemic. This put foreclosures at historic lows in 2020. Although there has been a slight increase in foreclosures since this time, the numbers remain far below what they looked like during the height of the Great Recession.
Home Builders Continue to Proceed with Caution
The insight gleaned from the Great Recession also extends to how homebuilders have approached building new developments. The crash that began in 2008 was enough to spur builders to pull back on developing new communities. As a result, it is not likely that there will be the chance of overbuilding bringing down the market. In addition, there are also more regulatory approval hoops for home builders to jump through, working to stymie new development.
Despite mortgage rates hitting the highest rate in over 20 years this past August, there is much to be hopeful about surrounding the U.S. housing market. While housing prices could inch downward after the busy summer selling season, economists are not expecting a decline to the degree of the Great Recession anytime in the near future.