This article originally appeared on USA TODAY: Is the US housing market in a recession or a correction?
A widening debate about where the U.S. housing market currently stands: Is it in a recession or a correction?
Is there a housing slowdown?
There is widespread consensus that the housing market has experienced a drastic drop-off in activity since its pandemic-prompted heights.
That slowdown will continue with moderate price declines for about 18 months, said Greg Phillips, chief technology officer of Houwzer, a Philadelphia-based real estate startup.
The housing market is “not like the volatile stock market always going up and down, the housing market moves at a different, slower pace,” Phillips said.
Compass’ Navab said millions of buyers “still want and need to purchase homes” though some buyers are pulling back in the face of limited affordability, increased mortgage rates, and overall economic uncertainty.
Buyers, sellers and real estate agents already are adjusting to the slowdown, said Navab, who notes that home sales prices, though lower, remain high.
“The market simply could not, and was never expected to, grow at that pace indefinitely,” Navab said. “Whether this trend will continue long enough for the market to enter a true ‘recession,’ or if this is simply the start of an expected ‘correction’ to historic norms, still remains to be seen.”
However, Navab said if the market does indeed stabilize at or near the current levels, “I would call that a ‘correction’ and not a ‘recession.’”
Making the case there’s a housing correction
Navab is hedging on a correction, citing the “the breakneck pace” of the housing market the past two years, including monthly sales regularly topping 6 million at an annualized rate and annual home price growth of 20% or more in many markets, was “both unprecedented and unsustainable.”
For example, Phillips noted that home prices in Philadelphia, Washington, D.C. and the Florida cities of Jacksonville, Orlando and Tampa-St. Petersburg are up as much as 20%.
Navab said the demographic drivers of housing demand powered the market largely due to “a robust millennial generation” that she feels will drive it for years to come.
“Well-qualified buyers that can afford to be patient and or can adjust their budgets may find more negotiating room and supply than they’ve had in years,” Navab said. “Sellers that are disciplined on their price should still expect plenty of attention on their listings.”
David Goswick, a 30-year veteran in the housing industry believes a housing market is simply in a correction.
The co-founder of House X World, a Houston-based real estate brokerage, Goswick said the market has been “a runaway train” since the pandemic began. Now, with pricey new and resale homes and new construction slowing, the market is readjusting.
He also thinks having a 90-day housing forecast now is “meaningless” as the market should be looked at in real-time through 7-day trends.
Making a case there’s a housing recession
Robert Dietz, the chief economist for the National Association of Home Builders, makes the case that the U.S. housing market is in a recession, citing eight straight months of declining homeowner sentiment.
The trade group’s Housing Market Index (HMI), which rates the relative level of current and future single-family home sales, fell 6 points to 49 this month.
A score of 50 or above marks a favorable outlook on home sales; A score below 50 indicates a negative outlook. Dietz also said that single-family permits are down 4% in the first half of 2022 compared to the first half of 2021.
The National Association of Realtors (NAR) agrees. The organization informally defines a housing recession as six months straight decline in home sales.
NAR Chief Economist Lawrence Yun said sales in July fell by nearly 6% compared to the previous month, equating to almost 5 million units marking the slowest sales pace since November 2015 – with the exception of a drop occurring at the start of the COVID-19 pandemic two years ago.
Additionally, the NAR said home sales, including single-family homes, townhomes, condominiums, and co-ops, fell about 20% compared to July 2021, when the housing market was scorching.
On the verge of a housing market collapse?
No, the housing market is not even close to the housing market crash during the 2008 Great Recession, experts agreed. That’s in part to new lending regulations resulting from the meltdown.
Borrowers are in much better shape, with higher credit scores. And with home prices still up, homeowners have a record amount of equity.
“This is a pretty complicated web that’s happening right now, but it’s nothing like the crash in 2008 and 2009, that took years for the market to unwind,” said Phillips, of Houwzer.
Los Angeles-based real estate investment adviser André Stewart, CEO of InvestFar, a startup, believes Federal Reserve Chair Jerome Powell is far from finished playing a key role in the housing market’s future.
“The FED also has a $2.7 trillion mortgage dilemma, combined with high-interest rates, it’s very unlikely the Federal Reserve can unwind its balance sheet,” Stewart said. “But if they do, prepare for a collapse, not a correction in housing over the next 18 to 24 months.”