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The real estate market is looking for Donnie Evans. The Dallas-area builder is completing homes six weeks faster than it did during the pandemic thanks to improved supply chains for everything from tiles to garage doors. There is strong buyer demand for his homes, which range in price from about $250,000 to $850,000, even as the 30-year fixed-rate mortgage rate is nearly 7 percent, more than double what it was 18 months ago.
“We’re not in a recession,” Evans said. “We’re in a bit of a slowdown. But I don’t think recession would be the right word for it.”
That’s the growing message from homebuilders, realtors and economists, who say last year’s housing recession – which many feared would continue while the Federal Reserve struggled to raise interest rates and curb inflation – has already turned. Supply chains are becoming more relaxed, which increases builder confidence and helps construction crews complete houses faster. High mortgage rates dampen demand, but do not dampen it entirely. Now that the frenetic bidding wars of the pandemic are over, more homes are available at all times, giving buyers a few options. And after falling in the second half of 2022, prices are slowly stabilizing, a further departure from the distorted markets of the pandemic.
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This is also good news for the economy as a whole. The housing sector – from providing jobs to home purchases to mortgage lending – is a key driver of consumer spending and economic growth. It’s also one of the industries most sensitive to interest rates, which the Fed hiked 10% historically fast clip from March 2022.
“The housing recession is over, but the question is, ‘What will the recovery look like?'” said Lawrence Yun, chief economist for the National Association of Realtors. “The ideal upturn is when we have more inventory and more supply coming into the market, so potential homebuyers have access to buying a home without a price spike.”
There is still a massive housing shortage across the country. Economists estimate the country will need between 1.5 and 5 million homes to close this gap. Compounding the problem is that current homeowners with low mortgage rates — say 3 or 4 percent — are not selling their homes, thus clogging up supply — a phenomenon economists call “hate the house but love the mortgage.”
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However, there are signs that a recovery is underway. New-build single-family home sales in May rose to their highest level since February 2022, up 12.2 percent from the previous month, according to the latest data from the Department of Housing and Urban Development and the Census Bureau.
According to the National Association of Home Builders, new homes also accounted for 31 percent of total stock in May, compared to a more typical 15 percent before the pandemic.
The prices are also improving. House prices peaked in June 2022 and then fell later in the year as the housing recession hit. But they are steadily recovering. Seasonally adjusted, the closely-watched S&P CoreLogic Case-Shiller Index showed prices rose 0.5 percent in April compared to March, the third straight month of moderate gains. Prices are still 1.8 percent below the June high.
The location is important. Seasonally adjusted data showed that of the 20 largest metropolitan areas covered by the index, only one saw prices fall between March and April. Prices in Boston rose 1.5 percent for the month. In Charlotte 0.7 percent.
Five years ago, Jay Thompson bought his home in Matlacha, Florida for $375,000. At the time, he didn’t think he would stay there for long; He likes to fish and his wife wanted to be closer to the beach. Planning a move to southern Venice, they put their home on the market for $850,000 last summer “just as the market was just about to fall off its high highs,” he said.
The house didn’t sell, and then Thompson had to spend the next few months repairing hurricane damage. In May, he relisted the home for $750,000 and later that month sold it for $725,000 — nearly double what he paid for it five years earlier.
Still, Thompson wonders if even as the market recalibrates, sellers in the region will continue chasing last year’s peak selling prices.
“It’s hard to sell in this particular area because people aren’t ready to drop the price yet,” Thompson said. “They still remember how lucrative it was in 2022 and are unwilling – especially if they were recent buyers – to lower their prices to match the current market.”
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In Boise, Idaho, real estate agent Debbi Myers saw the local market explode as West Coast transplant workers and others flocked in and bought up available homes. Then, when the Fed hiked rates last year, Myers said there was a slight pullback from buyers as some people waited to see what would happen to mortgage costs and the broader economy.
But now things are getting closer to normal. Homes stay on the market for between 60 and 90 days, rather than the crazy “60 or 90 minutes” like in the pandemic, Myers joked. According to Boise Regional Realtors, Ada County, Idaho, saw the fourth straight month of single family home listings increase in June. That month, the median selling price was $545,000 – down 8 percent from June 2022, but the third straight month of gains.
“Our prices have been over and then under, and now they’re kind of leveling off where they should be,” Myers said.
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The example of Boise and Evans in North Texas are consistent with the Fed’s view of the housing sector. Minutes from the central bank’s June meeting showed that some officials felt the impact of high interest rates on the market “appeared to have bottomed out, as home sales, builder sentiment and new construction have all picked up a little since the start of the year have improved”.
The Fed’s Beige Book, which compiles economic anecdotes and survey data from across the country, provided a few more examples. The Dallas Fed reported that housing cycles have improved and housing starts are expected to pick up in the second half of the year. The Philadelphia Fed said existing home sales were up slightly but still down from previous years, especially in the normally busy spring.
What happens next could depend on how much harder the Fed pushes to slow the economy. Inflation has come down significantly, but it’s still not as low as the authorities would like. After 15 months and 10 consecutive rate hikes, the Fed left rates unchanged in June but signaled two more rate hikes before year-end. One of those increases, likely by a quarter of a percentage point, is expected later this month. As markets priced in the next rate hike, the 30-year fixed-rate mortgage edged up slightly to 6.96 percent last week, according to Freddie Mac.
“No one is talking about an aggressive recovery,” said Robert Dietz, NAHB’s chief economist. “You know there will be stops and starts. … If interest rates go up 20 or 30 basis points, there will be some pricing out.”
Ryan Basten, a realtor partner in Ulster County, NY, has watched more and more people being forced out of the Hudson Valley, where prices have skyrocketed during the pandemic as New Yorkers fled inland. Basten said there is still high demand for homes between $500,000 and $800,000, particularly among buyers who are undeterred by high interest rates. The average home price buyer, “if there is one,” he said, could be paying nearly double for a home compared to pre-pandemic times, between the sheer price hike and the hefty monthly payments.
There aren’t nearly enough houses, but there have been some improvements; Days on the market have roughly doubled, from about 34 days to 70. Still, he worries that if the real estate recovery holds, it won’t reach everyone.
“I don’t see any easing,” said Basten. “I think what we’re experiencing will last for a while.”
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