Many aspiring homebuyers are watching as home prices begin to fall and wondering: What do I need to know about the housing market now? (See the lowest mortgage rates you may qualify for here.) So we asked Robert Dietz these questions. Since joining the National Association of Home Builders (NAHB) in 2005, Dietz has served as both chief economist and senior vice president for economics and housing policy for the association, where he conducts housing market analysis, economic forecasting, industry surveys and housing policy research . Here are this thoughts on the housing market now.
Mortgage rates will keep climbing.
Dietz says the housing market is likely to experience continued increases in interest rates in the immediate future as the Federal Reserve tightens monetary policy. “We should expect the Fed to hold these tighter conditions for much of 2023 as inflation moderates. Then, in 2024, housing demand for both new and existing home sales will recover, with home building expanding to help reduce the existing housing deficit,” says Dietz. (See the lowest mortgage rates you may qualify for here.)
Builders will build fewer homes: In fact, 2022 will be the first year since 2011 for which single-family home building will decline compared to the previous year, he says.
After a construction boom in the second half of 2020 and 2021, the home building sector is contracting, Dietz says. “Builder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index (HMI), has declined for the last eight months, falling to its lowest reading since 2014. The decline of the HMO reflects weakening market conditions for home builders, including current sales conditions and buyer traffic. The fall in sentiment also indicates that single-family construction will continue to decline in the coming quarter,” says Dietz.
He says home building has contracted as housing affordability fell to its lowest level in more than 10 years amide increasing mortgage interest rates. That has combined with higher construction costs which have risen than 35% since 2020 and priced out homebuyer demand.
But in the very short-term, buyers may have more inventory to choose from.
“In the short run, inventory will increase due to a pricing out of home buyers due to higher interest rates, but the market still lacks, per NAHB estimates, about one million residences given the current size of the US population and household characteristics. This means that just as housing led the economy in terms of weaker conditions in 2022, the housing sector will also lead the way to a rebound for economic growth due to a persistent housing deficit,” says Dietz.
While the current market may feel reminiscent of the housing crisis in 2007-2009, that housing boom and bust was produced by poor mortgage underwriting and a housing glut, says Dietz. “In contrast, today’s market features a housing deficit, which while still requiring navigating challenging affordability conditions, will ultimately result in a housing expansion to meet future demand,” says Dietz.
There are more ways to get bang-for-your buck for many buyers.
Thanks in part to remote work, buyers now have the potential to shop for homes in a larger market area than before — potentially expanding their ability to get more bang for their buck. “Up to one-third of the US labor force now thinks about the weekly commute rather than the daily commute in terms of time and transportation cost. This change in the geography of housing demand resulted in additional construction in outer suburbs for single-family housing and suburban multifamily buildings,” says Dietz. (See the lowest mortgage rates you may qualify for here.)
The remodeling market will continue to expand through the current period of weakness due to homeowners wanting more space, greater energy-efficiency and an ongoing trend of aging-in-place for baby boomers.
Dietz says, “This reinvestment in the existing housing stock will strengthen the existing home sale market when the housing market enters in recovery mode following the reduction of inflation.”
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