The Resilient U.S. Housing Market: Prices Bounce Back Amidst Challenges 

The FED’s stated purpose is to bring down inflation and curb the cost of living, but no expense is more significant to most Seattleites than the cost of housing. Housing, however, has proven too resilient to curb.

In a striking turn of events, U.S. home prices rose in July after a streak of five-month declines—the longest such trend observed in over a decade. This upswing hints at a resilience in the residential real estate sector that has surprised many market observers.

The swift recovery in housing prices indicates that the early-year downturn, which followed a sharp rise in mortgage rates the previous year, is proving to be shorter and less severe than most housing experts had foreseen. Behind this resilience lies a significant factor: scarcity.

The spike in interest rates has profoundly affected homeowners’ decisions. Many have chosen to remain in their homes rather than explore the market and take on heftier mortgages. The outcome? An exceptionally low inventory of homes available for purchase.

With mortgage rates reaching their highest in two decades, many prospective buyers have abandoned their pursuit of homeownership. Nevertheless, those properties that make it to the market often find themselves the subject of multiple offers, amplifying the final sales price.

Rates have slipped down to 7.12%, according to the Wall Street Journal, the second week of rate declines.

One of the most intriguing aspects of the current housing landscape is the sharp drop in the total number of transactions. Sales of pre-owned homes have plunged, with figures for January 2022 reflecting a staggering 36% decline. Yet, in a seeming contradiction, home prices (except in a few regions) have largely held their ground. The National Association of Realtors reported a 1.9% year-on-year rise in the national median existing home sale price, which stood at $406,700 in July. August witnessed an even more remarkable trend, with prices in 30 of the 50 major markets reaching all-time highs. This data, sourced from mortgage tech firm Black Knight, sheds light on the inherent strength and peculiarities of the housing sector.

As we look forward to the rest of the year, interest rates and inventory factors will continue influencing the market dynamics. The impending fall and winter seasons traditionally see a slowdown in housing activities, particularly from November to January. Couple this with mortgage rates expected to remain above the 7% mark, and we might see a further contraction in sales. I suspect rates will slowly decline by the second quarter of 2024.

However, market analysts remain optimistic about the stability of housing prices. The prevailing sentiment is that a significant price drop is unlikely even if sales continue to diminish. The reason? The persistently low supply of homes vis-a-vis the demand. To echo the words of Diane Swonk, KPMG’s chief economist, “Even in a market where higher rates have hammered demand, the supply just isn’t there.” Unless there is an unexpected surge in property listings, bringing down these robust prices might be challenging.

In summary, the U.S. housing market has demonstrated an uncanny ability to adapt and hold firm despite external pressures. The coming months will reveal more about its trajectory, but homeowners and potential buyers should remain aware of the intricacies shaping this dynamic landscape.