Housing market predictions are flying lately as economists everywhere begin to accept the possibility that previous fears of an impending Federal Reserve-induced housing market crash may be woefully off target.
Despite earlier projections of an impending housing market crash, real estate has managed to maintain most of its post-pandemic price growth, even in the face of persistent rate hikes through most of the year. Indeed, home prices are barely lower than their June 2022 peak, leading economists everywhere to speculate that, given the Fed’s recent rate pause and the stabilizing effect on mortgage rates, housing may be in for an imminent recovery.
“July will be an interesting month. We are just coming off the news that the Fed didn’t raise rates at their last meeting, which has given many buyers more confidence that there is some relief coming in mortgage rates. I don’t know if the pause on rate hikes indicates they will lower them in the next month, but it is positive,” said Alex Caras, a Chicago-based real estate agent.
This is an undeniable shift in tone from just earlier this year. If you recall, even as late as January, economists across the board have speculated that a monetary policy-fueled recession could loom large in the US, and afterward, US housing, in the latter half of 2023.
In October 2022, Sumit Handa, co-head of the investment committee at Pennington Partners, told InvestorPlace that housing may be a major contributing force to a broader economic downturn.
“Our expectations are that over the next few months, the US is likely to enter into a recession and it’s going to be driven by this deteriorating housing market,” Handa said.
Mortgage Rate Outlook for 2023
Home prices have remained relatively stagnant in the face of stubbornly elevated mortgage rates. Indeed, 30-year fixed mortgage rates are hovering around 6.9% at the time of writing, below its 2022 peak near 7.5%. This is in no small part due to the Fed’s rate hike pause.
At its most recent rate hike decision, the central bank opted to hold the benchmark rate between 5% and 5.25%, one of the only pauses since the Fed started its financial tightening campaign in May 2016. As such, some believe some hopeful homebuyers, previously discouraged by the notion of rising interest rates, are sure to return to the market in the face of semi-stable lending rates.
Mortgage rates remain the single most important factor in housing demand. Should lending rates remain reasonable, it’s not a stretch to say that housing prices could begin a climb back to previous highs.
“While mortgage rates likely will come down some in the second half of the year, there will be no return to the 3 percent rates we had during the pandemic,” Lisa Sturtevant, Chief Economist at Bright MLS, told Bankrate. “Homebuyers have had to accept the new normal of rates around 6.5 percent or even a little higher.”
Depending on who you ask, housing has several potential trajectories depending on the Fed’s actions going forward. Indeed, if the central bank spontaneously restarts its rate-hike efforts, mortgage rates and, thus, housing may stand to deteriorate in the second half of the year.
Housing Market Predictions for 2023
Crystal balls aside, some economists have shown regained optimism for real estate going forward, as demonstrated by recent housing market predictions.
“If current economic conditions persist, with elevated mortgage rates and home prices amid scarce inventory, the market is likely to for a long, slow climb and a few bumps along the way,” said Danielle Hale, Chief Economist at Realtor.com.
Meanwhile, Craig J. Lazzara, Managing Director at S&P DJI, believes that while the housing downturn may be over, it’s unclear whether growth is in the cards in the next few months.
“If I were trying to make a case that the decline in home prices that began in June 2022 had definitively ended in January 2023, April’s data would bolster my argument. Whether we see further support for that view in coming months will depend on how well the market navigates the challenges posed by current mortgage rates and the continuing possibility of economic weakness.”
Not everyone’s wearing rose-colored lenses as it maintains housing, however. According to ProChain Capital President David Tawil, because the Fed is likely to continue raising rates — added to the central bank’s already aggressive campaign — housing may be in for long-term deterioration.
“I don’t think that the Fed is going to go ahead and get to its inflation targets very soon. I think it is going to take a long period of time. Tawil told Fox Business. “Relative to the market, I don’t think that’s wrong. The markets have been able to take this in stride… It is going to crush some very interest-rate sensitive industries such as real estate, and I think we’re going to see a multi-year, maybe decade-long fallout, first on commercial, and then we will eventually get to housing.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.