Has the Housing Market Bottomed? This $2.3 Trillion Warning Sign Says Otherwise.


  • U.S. homes lost $2.3 trillion in the second half of 2022, per a new Redfin report.
  • Despite this, some economists are confident the market has bottomed out.
  • With an influx of new real estate inventory likely to clash with rising interest rates, it’s unclear exactly where housing is headed.
3D graphic of red arrow trending down with houses on top of arrow falling down with it
Source: shutterstock.com/Lerbank-bbk22

As mortgage rates continue to inch up toward 7%, the U.S. housing market is licking its wounds. According to a new report from Redfin, the total value of homes in the U.S. dropped $2.3 trillion from June 2022 to the end of the year. This represents the largest drop in home values since the 2008 financial crisis. Has the housing market bottomed, or are more growing pains ahead?

Well, by most accounts, the housing market is in the midst of a pinched free fall. Indeed, while home sales have rapidly declined in the face of rising interest rates and still-high inflation, the limited inventory of available homes in the U.S. has meant some areas have faired far better than others.

Cities like San Francisco, Oakland and San Jose each experienced declining home values between 3% and 7% in the second half of 2022. With that said, while home value fell nationwide last year, on a wider scale, prices are still higher than when the pandemic began.

In fact, some areas — like Knoxville, Miami and Charleston — enjoyed surging home prices close to 20% in 2022, despite a major slowdown in overall home sales. Single-family home sales fell to a seasonally adjusted annual rate of 3.59 million in January, an 0.8% drop from December, representing a staggering 36.9% drop from the same time last year.

Rober Frick, Corporate Economist at Navy Federal Credit Union, believes falling home sales could eventually give way to lower home prices:

“New home sales prices dropped precipitously in January to the lowest median price since February of last year […] While sales are still depressed from a year ago, this shows another crack in the housing market that should benefit potential homebuyers, especially when mortgage rates drop.”

What to Expect From the Housing Market in 2023?

The housing market remains constrained by limited supply. When the pandemic first hit and interest rates fell to near-zero, the housing market experienced an unprecedented boom. Indeed, hopeful homebuyers eschewed appraisals, waved inspections and frequently paid thousands over the list price, all in the hope of getting in on a low-interest mortgage.

These homebuyers are now essentially soaking up free equity on their homes. Especially as mortgage rates continue to climb, they have little reason to sell their homes. As such, it’s no surprise to see home prices stagnate somewhat. Even despite falling home sales, there aren’t enough available homes to merit sweeping drops to home values.

According to some housing experts, though, help is on the way. This includes Kelly Mangold of RCLCO Real Estate Consulting:

“There is still a large chunk of new construction homes currently under construction, and when those homes hit the market, especially over the next few months, we will see spring home buyers – those who can afford the higher new construction price tags – having more options and opportunities to break into homeownership.”

This should come as a relief to many motivated home buyers, especially given the tumultuous state of housing inventory early in the year. In fact, January recorded the lowest level of existing home sales in more than a decade and marked the 12th-straight month of declining home sales.

As a result, some homebuyers are beginning to look to new homes because of limited supply of resold real estate.

This is all to say that housing is in an indisputably weird place. While there’s evidence of easing home prices to come, so far the housing recession has only continued to grow graver.

“Home sales are bottoming out,” said Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), “Prices vary depending on a market’s affordability, with lower-priced regions witnessing modest growth and more expensive regions experiencing declines.”

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.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

Article printed from InvestorPlace Media, https://investorplace.com/2023/02/has-the-housing-market-bottomed-this-2-3-trillion-warning-sign-says-otherwise/.

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