Analysts Say Housing Market Turning a Corner

WASHINGTON – Stephanie Aliaga, global market strategist at JPMorgan, said that the housing market "was one of the hardest-hit areas of the economy when the Fed began raising rates, but there are signs activity has turned a corner."

When mortgage interest rates skyrocketed to nearly 8% in October 2023, homeowners stayed put because they didn't want to lose their lower mortgage rates. Aliaga, however, said, "This supply is beginning to thaw, with our measure of seasonally adjusted existing homes for sale showing a steady upward trend since last spring."

Between January and February this year, the National Association of Realtors® reported that existing home sales increased 9.5%, and unsold inventory was at a 2.9-month supply, up from 2.6 months the prior year. Aliaga added, "Some relief should also come from new home supply underway, with 1.6 million units currently under construction and housing completions hitting their highest level in 17 years in February."

In the coming years, construction is likely to rise with strong job growth and positive homebuilder sentiment. Wells Fargo senior economist Charlie Dougherty and economic analyst Patrick Barley said, "Although lower financing costs, rising supply and brightening economic growth prospects may help home sales turnaround from the sharp contraction experienced over the past two years, the recovery will likely be limited by adverse affordability conditions stemming from home price appreciation far outpacing income growth over the past several years."

Mortgage rates are likely to come down further, with Fannie Mae forecasting mortgage rates of 6.4% by the end of 2024. Aliaga concluded, "While the recovery in housing market activity will be gradual, resilient supply and demand dynamics underscore that it is not a source of vulnerability for the economy."

Source: Fortune (04/01/24) Botros, Alena