While housing market activity across the country remains sluggish overall due to high mortgage rates and tight inventory, there's light at the end of the tunnel.
"The housing recession is essentially over," Lawrence Yun, chief economist for the National Association of Realtors said during the trade group's forecast summit on Aug. 2, which provided an outlook on the national residential market.
For the past two years, the housing sector has been in a recession due to higher mortgage interest rates triggered by the Federal Reserve's attempt to curb inflation. Today, while economic recovery has not taken place, the housing sector is much improved, he said.
"Declines are happening but at a lower pace. I think by the (end of the) third quarter, things will turn positive," Yun said.
Yun pointed to some positive economic indicators: Inflation, now at 3%, is beginning to calm down. Wage growth is no longer outpacing inflation. There is more job creation. The number of job openings is greater than those searching for jobs.
Costs have started to tame for some products like gas (-27%) and airfare (-13%); however, other items are up, like food (+5.8%), electricity (+5.4%), lodging (+5%), and rents (+8%).
Rent increases will likely slow down, as apartment construction is now at a 40-year high, Yun said.
"Rents can't continually rise," he said.
Residential construction is up, and sales activity of newly built homes is doing better. Sales activity for existing homes, is still tight. The national median home price dipped 1% from 2022, but the market is seeing consecutive month-to-month price increases.
The National Association of Realtors predicts the 30-year, fixed-rate mortgage could reach 6.4% by the end of 2023 and then drop to 6% in 2024. The national median home price is expected to fall 0.4% by the year's end, reaching $384,900, and then rebound to $395,000 in 2024. New home sales are anticipated to rise by 12.3% in 2023, and by another 13.9% in 2024. The amount of new residential construction is expected to fall by 5.2% in 2023, then rise 5.4% in 2024.
California and Silicon Valley
Jordan Levine, chief economist for the California Association of Realtors, shared similar views on the state of the market in California.
Levine noted after a major shift, the state's housing market is doing better today than it has in the last five to six months. He believes next year we will see a "soft landing," a term used to describe a cyclical slowdown in economic growth that avoids recession.
In the local market, the severe housing shortage has been the number one factor in limiting the recovery of home sales in Silicon Valley, Jim Hamilton, president of the Silicon Valley Association of Realtors, said.
"Housing inventory, which includes new listings and total homes available for sale, is down by double-digits," Hamilton said. "Homes in Santa Clara and San Mateo counties are staying in the market a median eight and 10 days, respectively."
Levine said overall, the economy has been incredibly resilient. The housing market, he said, could potentially see more sellers, giving buyers more options. He anticipates that the number of home sales in California could approach 340,000 units next year.
"We're much improved from where we were," Levine said. "The worst has been weathered up to this point. The bottom is not going to fall out of the market. Make sure you look at the data and not the headlines."
Silicon Valley Association of Realtors (SILVAR) is a professional trade organization representing 5,000 Realtors and affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term Realtor is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of Realtors and who subscribes to its strict Code of Ethics.
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