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The Housing Market Is In A Recession And What It Means For Those Looking To Buy A House

Over the last few months, the housing market was at an all time high between high demand, surging prices and low interest rates.

However, recent data revealed that the market may actually be in a “recession” from where it once was. 

“We’re witnessing a housing recession in terms of declining home sales and home building,” said Lawerence Yun, chief economist for the National Association of Realtors.

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The slowdown in market sales will hurt the economy but it could also help those people who are searching for a home who are willing to pay the high prices.

According to Barrons, ever since July, previous homes were sold at an annual rate of 4.81 billion which marked the lowest rate since November of 2015.  

New home sales also have found themselves in a decline into their their lowest level in six years. 

“It’s not a recession in home prices. Inventory remains tight and prices continue to rise nationally with nearly 40% of homes still commanding the full list price.”

Both home builders and home sellers are experiencing the slowdown which explains why the prices are still up even with the start of this “recession.”

The rise and fall of the housing market also goes along with supply and demand. Even though the demand for homes has dropped recently, the supply count is still very tight. 

The lack of supplies is partly due to the lack of construction that has occurred over the last decade and even since the 2008 crash.

The demand for buying new homes have continued to drop since January, but the mortgage rates have still continuously faced a rise from 3.3% at the beginning of the year to 6% now.

The high mortgage rates have made it harder for those looking to buy a home to afford them.

The demographics also play in part with the supply and demand of the housing market as well. 

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Even while there is a recession within the market, there are still more people searching for a home than there are actual homes to buy. 

“We are seeing more inventory come into the market, but it’s not enough to meet the buyer demand,” said Jessica Lautz, vice president of demographics and behavioral insights at NAR. 

Given the constant highs and lows of the market, buyers may want to be patient before they decide if they are ready to commit to buying a home. 

For first-time homebuyers, they also have to consider the price of rent because that is consistently increasing as well. 

“Even though borrowing costs have risen, it still in the long run may be worth buying a home given that what’s driving inflation right now is rising rental prices. It still may be an opportunity to get out of the pressure of rents,” said Jeffrey Roach, chief economist at LPL Financial, a national broker-dealer. 

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Real Estate Experts Say US Housing Market Is On Its Way To Recovery

Real estate industry economists are stating that the nation’s housing market is on a correction course with housing prices slowly moderating, and even declining, in some areas.

Climate Change

Climate Change Is One Of The Biggest Contributors To Inflation And Economic Failures

“Climatenomics” is a new book from Bob Keefe, a former White House reporter and director of Environmental Entrepreneurs. In the book, Keefe discusses how the climate crisis is changing international economies and driving prices up in almost all sectors of business.

International Buyers Looking At US Housing More Than One Year After Pandemic Began 

During the first year of the Covid-19 pandemic, the US saw a major increase in domestic real estate transactions. International buyers took the opposite approach and avoided investing in any US properties while the pandemic continued due to the uncertainty of the world’s economy.

Sales of US homes to foreign buyers fell by about 31% from April 2020 to March 2021, according to the National Association of Realtors. 

International buyers purchased around 107,000 properties during that time, which marks the lowest unit volume and lowest dollar volume since 2011, according to NAR. 

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“The big decline in foreign purchases of homes in the U.S. in the past year is no surprise, given the pandemic-induced lockdowns and international travel restrictions.”

“Yet, even with the absence of foreign buyers, the U.S. housing market strengthened solidly,” said Lawrence Yun, NAR’s chief economist.

China, Canada, India, Mexico, and the United Kingdom are typically the top five countries continuously investing in US property. The amount of money brought in this past year, however, was down by at least 50% for buyers from China, Canada, and Mexico. The UK was the only nation that actually saw an increase in investment this year. 

Normally, China takes the lead in terms of the most amount of US property purchased throughout a given year, however, those transactions decreased significantly during the Trump administration. Now, China buyers have been inquiring more and more. 

“There has been quite a positive impact on the demand from the Biden boost, as the U.S. is being perceived as much more predictable now, and visas are also much easier to be obtained.”

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Georg Chmiel, executive chairman of Juwai IQI, a home listing site in China claimed that “on the other side, and now that we are over a year dealing with the Covid pandemic, it has lessened the impact on the buying decisions because flights to the U.S. are possible.”

Home prices are now 15% higher than they were pre-pandemic in the US; which makes sense considering the economic impact the nation has been enduring. Chimel stated that these rising prices, however, create a new demand for international buyers who may be afraid that they’re missing out on prime investment opportunities.”

Additionally, homes in the US are much less expensive than homes in places like London or Hong Kong, where a lot of buyers inquire about US property. The number of virtual tours on almost all major real estate sites in the US have increased exponentially. 

“So if that’s an indication of the comfort, then certainly this has increased, because people are now used to do far more things online shopping, education, also working from home online, and that also had an impact on the property market,” said Chmiel.

“As travel restrictions loosen and foreign students return to U.S. colleges in the upcoming year, there is likely to be some growth in foreign buying of U.S. real estate. High home prices and the ongoing lack of inventory could, however, pose a challenge for buyers,” Yun said.

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How Much Has The US Housing Market Been Impacted By The Pandemic? 

Housing experts throughout the US are currently experiencing a “white hot” market thanks to a multitude of economic reasons. However, problems that existed in the industry before the pandemic are being just as exasperated due to the impact of the past year overall. 

“One of the most prominent housing issues in pre-pandemic America was supply shortages. That has carried over and exacerbated, but we already had evidence of supply shortages heading into the pandemic,” said Matthew Murphy, executive director of the Furman Center For Real Estate and Urban Policy at New York University. 

Murphy also explained that “today’s housing situation has its roots in the last boom-bust cycle. The context here to this current housing moment is that we were still recovering from the 2009 foreclosure crisis, when property values plummeted.” 

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According to the National Association of Realtors (NAR), over the past two decades an underbuilding gap of between 5.5 million and 6.8 million housing units has existed since 2001. 

The National Association of Home Builders found that of “all the new single-family homes built last year across the U.S., none were priced below $100,000. A mere 1 percent fell in the range of $100,000 to $150,000. Home buyers in the bottom one-fourth of the market have been squeezed entirely out of the market for new construction,” the group said in an online post.

“In a pandemic, with people working from home and kids schooling from home, you need more space. We saw a real pickup in demand. People wanted a home with some green space and a community with lower population density.”

“The increase in demand has really been sparked by the record low level of mortgage rates. That’s a real opportunity for anyone who’s shopping for a mortgage or shopping to buy a home, and that’s really sparked the demand, especially among millennials or Gen Xers,” explained Frank Nothaft, chief economist at CoreLogic. 

Prospective buyers are also noticing a major decrease in available homes due to the fact that those who weren’t as economically stunted by the pandemic have been able to get out and acquire more real estate within the past few months of recovery. 

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“You’ve got this 20-plus percent year-over-year price growth, which you think would entice homeowners to sell. The bigger factor is just availability of supply to move into. … There’s nothing to go buy or downsize into,” said Todd Teta, chief product officer at Attom Data Solutions.

Zillow found a nearly 4% increase in housing availability on the market in May, which has been the first time that percentage has increased since July 2020. The NAR found that the average price of existing homes throughout the US have hit a record number of $350,000; up nearly 25% when compared to last year. 

“This is supply and demand on steroids.”

The other major issue is that builders, architects, and construction workers can’t keep up with the demand that the pandemic has created. Costs for certain raw materials like copper or lumber are projected to continuously increase within the next couple of months. That in addition to labor costs and the cost of land overall is causing a lot of buyers to be hesitant with their purchases. 

“There’s an affordability that comes with density, and in a lot of America, you can’t build that kind of housing. This just makes it harder for the market to supply this housing en masse,” Murphy explained. 

“If we see a substantial increase in the proportion of the workforce working remotely, then I think we’re going to continue to see some of this shift to single-family and this shift not just to suburban but to the outer edges of metro areas. When you sever that link between where you live and where you work, then that gives you a lot of flexibility on where you locate,”  Nothaft said.