After two years of a red-hot housing market with low interest rates and pent-up housing demand, the market slowdown from higher interest rates and an overall economic slowdown has many wondering: what’s ahead for housing?
Consumers and homebuyers are now surrounded by negative headlines about the current housing market, high interest rates, and the economy. As an industry, it is important to stay on top of the data and keep the market in perspective both for our businesses and our customers.
We spoke with two market experts to get their takes on our current housing market and what they feel consumers and industry professionals should keep in perspective.
David Arbit – Minneapolis REALTORS, director of research and Economics
Elliot Eisenberg – Former senior economist with the National Association of Home Builders in Washington, D.C., serves on the expert advisory board of Mortgage Market Guide, and is the chief economist for GraphsandLaughs, LLC
Q: Where does our current housing market stand?
Arbit: Up until late last year, we really hadn’t seen a market like what we had seen over the few years. Never on record have homes sold more quickly, and never on record have sellers gotten stronger offers. As of August, home prices are still rising, but at half the pace of a year ago (7% versus 14%). Inventory is also on the rise, but slowly and up from historic lows. The biggest change is sales are down in light of rising interest rates and deteriorating affordability.
Eisenberg: Housing is not in any shape, way, or form overextended. As a matter of fact, it really never got on track after the crash in 2008, where builders could make up for the undersupplied housing market. Housing was never able to fully take advantage of the low rates we had in 2020 through 2021. Homebuilding activity increased, but it couldn’t make up for the undersupplied market because you couldn’t get land, you couldn’t get labor, and you couldn’t get parts – like everybody else during the pandemic.
For people who were 35-40, looking to buy a house and only knowing low interest rates for
the last 10 years or so, these seem high. But for people who are 50 or 60 and have been through a couple of cycles before, they’re still saying, wow, it’s a pretty good rate.
Q: What should consumers know right now?
Eisenberg: This is the best time to buy a house that there has been in a long time. The conditions are becoming increasingly favorable to buyers. Acknowledge this, be aware of this, and behave accordingly. This is not the market as recently as three or four months ago when buyers had to forego inspections and say ‘here’s my money.’ Now, it’s different — buyers can take their time and be a little bit pickier.
Arbit: Sellers are still getting over 101% of asking price, but not quite the 103% they had last year around this time. It is still a good time to sell a home, but you might expect to get 1-2% over list price from a few offers versus 10-20% over list price from 30 offers a year ago. This is normal; the market from 2020-2021 was not normal.
Q: What should we expect in the housing market ahead?
Arbit: Housing has been persistently underbuilt for around 15 years, and we have a dramatic inventory shortage. But supply buildups are typically associated with bubbles, and we simply don’t have that. Bubbles are propped up by easy money. We currently have cheap money, but not easy money. Owners are sitting on a mountain of equity, so even if home prices were to soften by 5-10%, relatively few owners would be underwater. Today’s buyers are extraordinarily highly qualified borrowers, especially compared to 2006-2007.
Eisenberg: I’m afraid inflation may linger around for a while. And as a result of that, the Fed keeps raising rates. The more they raise rates, the higher the probability of recession. So that’s short term, and that will cause fewer homes to be sold. Long term, the demographics look good for the next 5 to 10 years. The number of these younger millennials, the 29- to 33-year-old cohort, are the largest cohort in U.S. history — bigger than any baby boomer cohort — so there’ll be a lot of home demand for this group.
