It’s The ‘Year Of The Head Fake’ In America’s Housing Market

Photo courtesy of NAREE.

By KIMBERLEY HAAS

Economists tracking the housing market say it’s still a game of wait and see as mortgage rates and other affordability factors weigh heavily on potential buyers and sellers.

Lawrence Yun, chief economist at the National Association of Realtors, said he thought the housing market would recover this year, but that has been delayed.

“I think part of the reason is the Federal Reserve indicated publicly in December of last year three or four rate cuts, expect three or four rate cuts in 2024. Now, delay, delay, delay, with the possibility of only one rate cut so mortgage rates remaining elevated may be one of the reasons why home sales are yet to recover,” Yun said.

Yun spoke during a panel discussion at the National Association of Real Estate Editors conference on Thursday. He said affordability is a reason why buyers, especially first time homebuyers, are not able to compete in the current market.

Yun said in 2019, it cost about $1,000 a month to get into the market for a median priced home with average interest rates. Today, that cost is over $2,000.

“The frustration that some younger generations who are not homeowners, when they are expressing deep frustration about the economy, maybe they are saying this, that this is that deep frustration that is in the back of their mind, somehow that American Dream appears to be out of their reach, or nearly impossible,” Yun said.

Selma Hepp, chief economist and SVP at CoreLogic, said they also started off the year expecting a recovery in the housing market and it turned out to be more of the same.

Hepp said while mortgage rates remain high, inventory in many markets is still low, pushing home prices up. CoreLogic projects that home prices will appreciate by 5.7% nationally in 2024.

Hepp said the lock-in effect is still at play, keeping would-be sellers in place due to the low interest rates they are paying on their current mortgages.

“The majority of loans are still well below where the current prevailing rate is,” Hepp said.

She said non-mortgage expenses such as insurance, utilities, and property taxes have gone up. This rubs salt in the wound for homeowners and would-be buyers.

Odeta Kushi, VP and deputy chief economist at First American Financial Corporation, said all of this is happening as Peak Millennials, born in 1990 and 1991, reach their homebuying years.

“Millennials are interested in homeownership. They are aging into their prime homebuying years,” Kushi said. “They’re also the highest educated generation, though Gen Z will likely surpass the Millennials as the most educated generation, and we know that high educational attainment yields to higher income, which is highly correlated with homeownership.”

Kushi offered insight into the supply and demand dynamic in the housing market. She said that between 2000 and 2008, there was overbuilding compared to new household formations.

“Starting in 2009, that reversed, so we were underbuilding relative to new household formation. So we started to whittle away at that extra surplus until the surplus turned into a deficit. And that deficit has only grown,” Kushi said.

NAREE’s conference is being held in Austin, Texas, this week.

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