|Housing market recession? Depends on who you ask.|
|Quick Take:Home prices fell for the first time this year, declining 2.4% month-over-month, according to the National Association of Realtors.The number of home sales continued to slow for the sixth month in a row, helping inventory climb higher.The housing market is trending more meaningfully toward balance, although we are still in a sellers’ market.Note: You can find the charts & graphs for the Big Story at the end of the following section.|
|We knew the end of the streak was coming. Higher mortgage rates, which negatively affect affordability, combined with the typical summer sales slowdown and higher inventory have caused prices to decline month-over-month from the all-time high they reached in June 2022. The National Association of Realtors (NAR) data show that the median home price in the United States declined by 2.4%, and Realtor.com data indicate that the median price per square foot declined by 0.43%. These aren’t major declines, as you can see, especially when considering the decline in sales. According to NAR, the number of homes sold dropped 5.9% month-over-month and 20.2% year-over-year, which is substantial but not necessarily unexpected. Home sales in 2020 and 2021 were the highest since the 2006 housing bubble burst, which set the stage for the 2008 financial crisis, and normal seasonal trends were less pronounced or non-existent. It’s very easy to get wrapped up in the recent past, especially when it comes to large financial purchases, most of which (a new home!) are profoundly life-changing. We weren’t sure how long the break in historic seasonality would last, but it seems to have ended, and seasonality has mostly returned.|
As we look at the pre-pandemic seasonal trends, home prices and inventory increased in the first half of the year and declined in the back half. The trend is essentially two steps forward and one step back over and over, so even when the second half of the year sees some price decline, year-over-year prices tend to be higher. In July, we reached the longest-running streak of year-over-year home price increases on record, with 125 consecutive months. This year, inventory may peak later than usual if sales continue to decline through what are typically the strongest sales months (May-August). From January 2020 to June 2022, the median price per square foot rose 54%, so there is definitely room for some price declines in the back half of this year.
The monster price gains in 2020-2022 were, of course, pandemic related, and the already tight housing supply dropped to shockingly low levels. However, with fewer sales than expected and more new inventory coming to market, active listings have nearly doubled from the all-time low reached in February 2022. More inventory can only benefit the market, as we are still 44% below July 2019 (pre-pandemic) levels. Housing starts have declined since this past April as the cost of building has gone up. The National Association of Homebuilders’ Housing Market Index, which measures homebuilder sentiment for the single-family home market, has declined every month of 2022. These declines in sales and home building have led NAR Chief Economist Lawrence Yun to use the term “housing recession” with some caveats. We believe, however, that the word “recession” is too dark a picture for the current market. Although the market still favors sellers over buyers, we are moving toward a more balanced market, which feels like quite a switch given how deeply we dove into a sellers’ market since mid-2020. The market is getting healthier and a little less hot, which is ultimately beneficial to everyone participating when we look at the big picture. Buyers are facing less competition, but they still must compete, and sellers are still generally getting at least asking price.
The U.S. housing market has become more nuanced over the past several months, depending on the region. Some parts of the country are trending closer to balance, while some are moving deeper into a seller’s market. Take a look below at the Local Lowdown for in-depth coverage of your area. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
|Big Story Data|
|The Local Lowdown —Dallas-Fort Worth Metro, Greater Austin, Greater Houston, and Greater San Antonio|
|Quick Take:The Texas housing market remains one of the strongest in the country despite some price declines over the summer months.New listings declined in August while sales remained steady, slowing inventory growth.Although Months of Supply Inventory is rising (toward a balanced market), we are still firmly in a sellers’ market.Note: You can find the charts/graphs for the Local Lowdown at the end of this section.|
|What about price growth?!|
|Prices tend to stagnate or decline slightly this time of year, which is exactly the case in Texas’ major metro areas. The median single-family home and condo prices have declined off their peaks reached earlier this year, which isn’t unexpected, as we are returning to more normal seasonal price trends of growth in the first half of the year and slight contraction in the second half. This is, of course, exacerbated by rising mortgage rates. Although the current average 30-year mortgage rate of 5.66% is still historically low, the hyper-low rates we experienced in 2020 and 2021 allowed many more buyers to enter the market. We saw firsthand what happens when demand booms in an already undersupplied market: Home prices skyrocketed. However, when we link the price increases and seasonal trends with the 2.5% increase in 30-year mortgage rates, which increase the monthly mortgage payment by about 35%, we get a better picture of why sales have slowed and prices declined.|
|Inventory remains historically low|
|Single-family home and condo sales remained relatively steady month-over-month, while new listings declined, keeping inventory historically low. The number of homes for sale has trended lower over the past three years and settled at lower levels, which is likely the new normal for housing inventory in the country. Generally, smaller supply equates to fewer sales. For example, if 500 homes sold last year, but there are only 300 homes for sale on the market this year, it’s awfully difficult to hit more than 300 sales. With the drop in inventory, the peak inventory levels for 2022 will undoubtedly be the lowest on record.|
Additionally, the huge number of sales in 2021 implies a sales slowdown in the future, and the future is now. On average, people move about 12 times in their lifetime in the United States, meaning if a million more people than average buy a home one year, there’s a decent chance about a million fewer people will buy a home the next. Homes are generally not something people continuously buy year after year.
|Months of Supply Inventory remained low, implying a sellers’ market|
|Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around four to five months in Texas, which indicates a balanced market. An MSI lower than four indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). Single-family home and condo MSIs have climbed significantly over the past four months, but they’re still well below four months of supply, indicating that Texas metro areas are still experiencing a sellers’ market.|
|Local Lowdown Data|