Talk of weakness is everywhere, especially in the housing sector, with recent data pointing to weak housing starts and sales slowing due to a sharp rise in mortgage rates.
This does not mean that the sector is on the verge of collapse, as we saw during the Great Financial Crisis. It’s more of a mystery than that.
For example, earlier this week, homebuilders cited rising interest rates and rising construction costs — some related to the supply chain — as “bringing the housing slump,” said Robert Dietz, chief economist for the National Association of Home Builders. He said.
On Thursday, the National Association of Realtors used similar terminology. “In terms of the economic impact, we’re definitely in a housing slump because builders aren’t building,” and sales activity has fallen for six consecutive months, meaning economic activity has slowed, says NR’s Lawrence Yun.
“So we’re in a housing bust,” he said.
Houses are still sold
To be clear, this does not mean that the broader housing market is in flux.
Christine Cooper, managing director and managing director of America’s Economist at Costar Group, said homes are still selling.
The indicators “can be dismal,” Cooper told MarketWatch, but “mostly the slowdown in the market is a reversion to a balanced market.”
She added that it was time for sales to slow down, especially since wages were not guaranteed.
And prices aren’t crashing and burning.
Homeowners are “absolutely not” in a recession, NR UN stressed.
“For the average consumer, the word recession conjures up dire times. It’s a tough market for home sellers and home builders,” Yun said in a follow-up email with MarketWatch. But homeowners continue to accumulate home equity as home prices rise.
Buyers may be pulling back, but that’s not causing a flood of housing to hit the market or a shortage of quality buyers.
Buyers feel more confident that they can easily face a broader recession.
“The first reaction for people is to do nothing,” Jane Holland, a realtor with ERA Key Realty in Massachusetts, told MarketWatch.
Herd mentality is also part of it: “When everyone came out to look at houses, there were lines out the door at open houses,” she said. “Everybody was like, ‘I’d better buy a house.’
“There were lines out the door at open houses as everyone came out to look at homes. Everyone was like, “I’d better buy a house.”“
Now that the market has slowed, prices have risen, and talk of a recession is rampant, open houses have slowed, she says. People are more at risk.
“There’s definitely been a shift in buyer confidence,” Hall said.
Some of her buyers pulled out of the sale because they were unsure, or wanted to wait for prices to drop, or rates to drop. People “seem frozen,” she said, “or feel like the calmest thing I’m doing is nothing.”
Hall said two big sales fell through this week and she’s struggling to get to the bottom line with many buyers. “There’s a lot of work behind the scenes these days to keep people from jumping ship,” she says.
But given the macroeconomic backdrop, “there may still be a few more months of overshooting before inventory expands,” Cooper said.
NARR’s Yun said that “we may be out of a housing slump soon” as home sales have stabilized recently.
But all this talk of recession and cooling demand has helped some buyers.
Prospective buyers are taking the opportunity to bide their time and ask more sellers.
“I’ve had one house after house that gave me 37 inspection requests,” she said. “I almost fell off my chair. And this house is 40 years old.
Do you have an idea about the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com
