Housing crisis likely to continue in the US, but experts show optimism

Mortgage rates in the United States have dropped recently, but are still rising dramatically from the previous year, thanks to rising long-term bond yields as the Federal Reserve raised interest rates.

While this has already had a negative impact on the housing market, we’ll get more details this week on just how much worse the damage has become.

A long list of housing data is available. On Tuesday, the US Census Bureau will report housing starts and building permit numbers for November, followed by the release on Friday of new home sales data. for the same month.

In between will be November existing home sales numbers from the National Association of Realtors on Wednesday (21st) as well as weekly data on mortgage rates and applications on Thursday (22nd).

Over the past few months, new and existing home sales have been steadily declining due to rising rates and the fact that home prices remain stubbornly high for first-time homebuyers.

Housing starts and building permits have been more hectic month-on-month, but those numbers are down year-on-year.

Still, there are some promising signs that the worst may soon be over. Shares in Lennar, one of the largest US homebuilders, rose after reporting earnings last week.

Revenue beat forecasts, and the company’s guidance for the number of homes it expects to deliver in the coming year was also slightly higher than analyst estimates.

Lennar investors “may be looking at 2023, perhaps crossing the valley of the recession into potential recovery,” according to Kenneth Leon, an analyst at CFRA Research.

Bubble has not yet formed

According to data from the Amherst Group, an investment firm that buys single-family homes for rent, it’s important to put the recent drop in prices in context.

Amherst said house prices are still about 40% above pre-pandemic levels. So even a further drop of about 15% would only take them to mid-2021 levels. In other words, this is not like the housing bubble burst of the mid-2000s.

It’s also worth noting that the job market is still strong and wages are rising. Additionally, many consumers still have decent levels of excess savings thanks to pandemic-era government stimulus.

This all adds up to some good reasons why the housing market could avoid a severe and prolonged slump.

“The US housing market is still supported by a tight job market, the locking effect of low fixed mortgage rates on existing homeowners, tight mortgage underwriting, low leverage in the mortgage industry and low housing supply,” he said. Tracy Chen, in a report this month.

“We believe that we can avoid a severe real estate crisis like the global financial crisis,” added Chen.

Others point out that while home sales may remain subdued due to high home prices and still high mortgage rates, the good news is that most existing homeowners are still paying their monthly mortgages on time.

Again, this is a stark contrast to 2008, when many people with subprime loans or borrowers with poor credit histories were unable to pay their mortgages.

“Housing is not bringing down the economy. Yes, the real estate market has been impacted. But mortgage delinquencies are still low,” said Gene Goldman, chief investment officer at Cetera Investment Management.