Housing Market in Recession
Over the past few years, the US housing market has been heating up at an unprecedented rate. However, due to the coronavirus (COVID-19) pandemics, the housing market has cooled down considerably. This cooling effect will likely cause the housing market to enter a period of decline. However, there may be opportunities for certain people if they're willing to pay top dollar for homes.
Sales of existing houses have declined for two consecutive months, falling to the lowest point since September 2016. Meanwhile, new house sales have fallen to the lowest point in six years.
Rising home prices in Oceanside, CA are largely responsible for the recent surge in home purchases. However, after this past spring’s spike in interest rates, potential homeowners who were able to afford homes at lower rates now face stiff competition from would-be buyers who had been waiting for cheaper financing options.
Rates haven't been this low since before the financial crisis, but they're going back up slowly. And even though interest rates are lower than they've been in years, there's still too much supply out there to drive prices down further.
With rising mortgage rates, tighter lending standards, and an increase in building costs, economists say there could be a significant drop in the number of homes sold next year.
Lawrence Yun, chief economic advisor for the National Association of Realty, described the recent downturn in real estate activity as a "housing" or "real estate" (or both) "recessions."
With a real estate slump, economic activity could be impacted. Construction, rental, and other related expenses affect GDP.
‘The U.S. real estate industry has been a pretty good indicator of the health of the broader U.S. economic recovery,’ says Len Kiefer of Freddie Mac. ‘Given the slowdown in residential activities, we expect the overall U.S. economic expansion to cool off a little bit.’
Home price growth has slowed down due to depressed sales activity. Sales activity has been sluggish for several months now.
With prices rising at an annualized pace of 4.9% during the first quarter, the median price of existing homes increased by 8.1%. Meanwhile, the number of single family homes listed for sale has fallen by 3.6% since the start of 2018. These factors combined to push up the average sales price of a single family house by 6.2% from January through March.
But even though shoppers may be looking for deals, they're still buying at full price. Some sellers in hot spots cut their listing fees by up to 50 percent during the pandemic.
As we all know, the real estate industry is very cyclical. It goes from boom to bust, then back to boom again. But there are always those people who buy when they're on sale. And if you're looking to sell, now may be the time to do it.
The current situation is not going to last forever. We've already had two recessions this year alone. So while it might seem like a great opportunity right now, don't wait until later to jump into the market. You'll miss out on the best deals.
What Recession Would Mean for Home Buyers?
If you are looking for a home to buy, now may not be the best time to do it. This is because there is a chance of housing recession next year and housing bubble may burst.
This would mean that housing prices might drop by as much as 10% over the course of a year. Unemployment rate may drive median home prices further down. This may drive foreclosure and may improve inventory level and affordable housing supply.
If this happens, then many people who want to sell their homes will have trouble selling them at all. Number of potential homebuyers may reduce.
So if you're potential buyer, make sure that you don't wait too long.
You should also think carefully about whether you need a mortgage right now.
Because if the housing market does go into recession, then you'll probably find yourself paying higher interest rates.