The housing market appears to be stabilizing after suffering from the effects of higher mortgage rates and limited inventory of homes for sale, two reports showed Tuesday.
Miami, Chicago and Atlanta reported the highest annual gains in March. Miami posted a 5.2% year-over-year price increase, while Chicago moved into the second spot with a 4.1% increase, followed by Atlanta with a 3.5% gain.
“If I were trying to make a case that the decline in home prices that began in June 2022 had definitively ended in January 2023, April’s data would bolster my argument,” said Craig J. Lazzara, managing director at S&P DJI. “Whether we see further support for that view in coming months will depend on how well the market navigates the challenges posed by current mortgage rates and the continuing possibility of economic weakness.”
A combination of rising household incomes and a dip in mortgage rates made housing slightly more affordable in April, according to research by First American Chief Economist Mark Fleming.
But, Fleming says, “Nominal house prices need to adjust to the reality of higher mortgage rates for the housing market to become more affordable and balanced, but a fundamental housing supply shortage is keeping a floor on how low prices can go.”
As mortgage rates have risen to around 6% for a 30-year fixed loan, existing homeowners have been unwilling to put their homes on the market as many have mortgages with interest rates half that level.
Sales of new homes, meanwhile, soared in April by 12.2% to an annual rate of 763,000 from April’s revised 680,000 level. New home sales are now 20% higher than they were a year ago.
“First-time home buyers are an unexpectedly important target market for home builders,” said Bright MLS Chief Economist Lisa Sturtevant. “Historically, new home prices have been 15 to 20% higher than prices of existing homes and have been more attractive to repeat buyers. In recent months, however, the price gap has narrowed and first-time buyers are increasingly looking to the new home market as competition in the existing home market remains intense.”
George Ratiu, chief economist at Keeping Current Matters, said the South has seen an increase in new home construction.
“The growth in new homes in Southern states has increased available options for buyers, leading to an accompanying increase in the inventory of existing homes for sale,” Ratiu said. “The net effect of more new homes has been a boost in overall activity in the region.”
Ratiu predicted that the areas leading the way in transactions in the second half of the year would be affordable mid-sized markets like Fayetteville, Arkansas; Lakeland, Florida;, Myrtle Beach and Spartanburg, South Carolina and Huntsville, Alabama..”
The improving housing market and the strong, if weakening, labor market continue to keep the economy on a positive track, even as economists talk of an impending recession.
On Thursday, the government will report the final number for gross domestic product in the first quarter with expectations it will be revised slightly upward to 1.4% from 1.3% previously. Estimates for the second quarter are at 1.9%.
Economists generally say it takes two consecutive quarters of negative growth to mean the economy is in recession, although the actual determination relies on other factors such as the strength of the job market.
Consumers grew slightly more optimistic in May, as inflation ebbed and the debt ceiling negotiations ended peacefully, the Conference Board said on Tuesday.
The business organization’s consumer confidence index increased sharply in June to 109.7 from 102.5 in May. The present situation index – a measure of consumers’ assessment of the current business and labor market – rose to 155.3 from 148.9 last month. The expectations index – measuring the short-term outlook – rose to 79.3 from 71.5 in May.
“Consumer confidence improved in June to its highest level since January 2022, reflecting improved current conditions and a pop in expectations,” said Dana Peterson, chief economist at the board. “Greater confidence was most evident among consumers under age 35, and consumers earning incomes over $35,000. Nonetheless, the expectations gauge continued to signal consumers anticipating a recession at some point over the next 6 to 12 months.”
Notably, recession fears appear to have eased considerably in June, after being on a steady upward trend since last summer. Some 69.3% of consumers now say a recession is “somewhat” or “very likely,” down from 73.2% in May.