The Weekly Wire: What About Housing?
The recent housing market shows declining mortgage applications, home sales, and builder sentiment due to higher borrowing costs, yet maintains resilience with record-high median home prices, positive builder sentiment, and a critically low supply of homes for sale, suggesting no imminent significant downturn despite economic uncertainties.
The housing market is always worth paying attention to, especially during periods of economic uncertainty. A house is the most significant asset most Americans own, and it is a leveraged asset, as most homeowners borrow a meaningful amount of money to purchase a home. When the housing market is performing well, typically the economy is too—such as in the mid-2000s. Conversely, when the housing market is struggling, the economy often follows—such as in the late-2000s.
The Great Recession was particularly severe because it was housing-led; not only did the value of most Americans’ primary asset decline significantly, but many were left with mortgages greater than the value of their homes. This situation contributed to lower interest rates having little effect in stimulating the economy through the 2010s, as millions of Americans were unable to refinance due to a lack of equity.
Last week brought notable developments in the housing market:
- Mortgage applications declined 19% year over year.
- Existing home sales fell 5.4% in June.
- Homebuilder sentiment dropped by 12 points, as measured by July’s NAHB Housing Market Index.
Higher borrowing costs—the average rate on a 30-year mortgage is just shy of 6%—are clearly impacting demand. However, there are also signs of resilience:
- The median price of an existing home sold in June reached a record $416,000.
- Builder sentiment remains five points above the 50 threshold, which is still considered positive.
- There were 1.26 million homes for sale at the end of June, equating to an exceptionally low three-month supply at the current sales pace.
Supply is a key factor in the current outlook. There are just 1.26 million homes for sale today, compared to 4.0 million homes for sale on the eve of The Great Recession. This limited supply is a significant reason for not expecting a meaningful downturn in housing at this time.