The Housing Recession Deepens
Mortgage rates are still rising, reaching 7% this month from around 3% less than 12 months ago. As a result, mortgage applications for new purchases have plummeted, and the housing market is beginning the feel the pinch. The NAHB US housing market index, which is based on a monthly survey of homebuilders, fell for the 10th straight month to 38 in October of 2022, half the level that it was just six months ago. A level of 50 or over indicates that more builders view sales conditions as favorable. A level of 38 shows a significantly unfavorable housing market.
According to a report by Redfin, home sales dropped 25% year over year in September and listings fell by 22%. When excluding the pandemic, both figures are the biggest on record, reflecting a housing market in decline. Meanwhile housing starts also fell by 8.1% in September and have declined by more than 27% from the February 2022 high. Muti-family building permits rose in September but are still down 11% year to date.
Average house prices in the US decreased to $521,800 in August from $556,700 in July, a monthly drop of 6.6%. While home prices are still up on a year over year basis, the monthly drop shows that home prices have clearly stalled from their upward climb and could begin trending downward. The Federal Reserve still considers the declines a ‘correction’. Fed Governor Christopher Waller said, “While this market correction could be fairly mild, I cannot dismiss the possibility of a much larger drop in demand and house prices before the market normalizes.”
Persistently high inflation, and the resulting rise in interest rates has led to a global repricing of almost all assets, including stocks, bonds, and now real estate.