Is the housing recession over? The conforming 30-year fixed rate dropped to 6.60 percent this week, according to Freddie Mac. The fixed 30-year mortgage rate rose to its maximum 7.8 percent in October 2023 before gradually descending to the current rate.
It had reached this height largely because bond traders had bought the Fed’s story that inflation was still out of control and would take years to return to more normal levels.
This has not been the case. Bond markets are belatedly discovering that inflation has subsided much more quickly, so that it is already close to the Fed’s 2 percent target rate. Even New York Fed President Waller has said the balance between the Fed’s twin mandates of maximum employment with stable prices is “just about right”.
This will bring down mortgage rates even further. The main effect of declining interest rates will be to benefit the housing market that is faced with a severe shortage. This year may see a full-blown housing recovery after a false start in 2020 during the COVID pandemic when fixed mortgage rates briefly dipped to 3 percent.
NAR’s chief economist Lawrence Yun had even announced the housing recession was over last year.
Yun said at the time, “The recovery has not taken place, but the housing recession is over. The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply. Homebuilders are ramping up production and hiring workers."
Yun was perhaps making a rash prediction because pending home sales at the time, an indicator of homes in escrow but not closed, had risen for the first time in 4 months.
Home sales are continuing to rise ever so slowly this year, and single-family starts that power the housing market have been increasing since January 2023 per Calculated Risk’s graph.
So I believe this year will be the beginning of a real housing recovery, and perhaps signal that overall economic growth will remain strong, since a housing recovery has signaled such in the past.
Privately‐owned housing starts in December were at a seasonally adjusted annual rate of 1,460,000. This is 4.3 percent below the revised November estimate of 1,525,000, but is 7.6 percent above the December 2022 rate of 1,357,000, said the US Census Buteau.
Single-family starts increased 15.8% on a year-on-year basis. Permits for future construction of single-family homes increased 1.7% to a pace of 994,000 units last month, the highest level since May 2022.
Another reason the housing recession may be over. Consumers are becoming more upbeat with the University of Michigan’s consumer sentiment survey jumping a record 13 percent.
“Consumer sentiment soared 13% in January to reach its highest level since July 2021, showing that the sharp increase in December was no fluke,” said survey Director Joanne Hsu. “Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations. Over the last two months, sentiment has climbed a cumulative 29%, the largest two-month increase since 1991 as a recession ended.” (my emphasis)
It looks like consumers and homebuyers aren’t waiting longer for this recovery to begin.
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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