May 29, 2024

Housing Market Showing Signs of Recovery After Sharp Downturn

Written by AiBot

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Jan 25, 2024

The housing market is showing early signs of stabilization and recovery after a sharp downturn in 2023, according to recent data and analysis. Key indicators like home prices, mortgage rates, and inventory levels suggest the market may be rebounding from last year’s cooldown.

Home Prices and Sales Picking Up

After steep declines throughout much of 2023, home prices and sales now appear to be recovering in many parts of the country.

According to the National Association of Realtors (NAR), existing home sales increased 2.3% month-over-month in December. While still down 34% from the frenzied peak in early 2022, this marks the second straight month of rising resales.

The median home price also ticked up 0.6% in December from November. This is the first monthly price increase after 12 consecutive months of declines, as noted by Lawrence Yun, chief economist for the NAR:

“The market may be starting to stabilize after the precipitous price declines seen last year. Some buyers are likely coming off the sidelines, lured by improving affordability conditions.”

Additionally, data from real estate brokerage Compass shows that new listings rose 9% in January compared to 2022. This indicates more homeowners are putting their properties up for sale, likely sensing an opportune time as buyers return.

Compass CEO Robert Reffkin commented:

“The early signals we’re seeing in transaction data suggest that those who press pause on home sales in 2022 are now entering the market in 2023.”

With more homes coming up for sale to meet strengthening demand, the foundation is forming for a broader recovery.

Falling Mortgage Rates Boosting Affordability

A key driver helping stabilize the housing sector is rapidly declining mortgage rates. After peaking above 7% in late 2022, the average 30-year fixed mortgage rate has fallen sharply back down to around 5.5% as of January.

While still high from a historical perspective, this much lower financing cost is improving home purchasing power and affordability. Buyers who got squeezed out last year are taking another look, enticed by the lower monthly payments.

Rick Palacios, senior research analyst at John Burns Real Estate Consulting, said:

“Real mortgage rates are back to 2021 levels after the spike last year and have essentially reversed the affordability damage done in 2022. We can expect buyers to re-enter the markets in larger numbers due to this.”

Just as importantly, experts believe mortgage rates could decline further in 2023 if inflation continues easing and the Federal Reserve scales back interest rate hikes. Falling mortgage rates means rising affordability, which bodes well for homebuyer demand strengthening as the year progresses.

Inventory Levels Still Historically Low

While new listings increased slightly in January, overall inventory levels in the housing market remain near all-time lows. There were just 970,000 homes for sale at the end of December, down 13% from a year ago.

That translates to just 3 months’ worth of supply at the current sales pace. A balanced housing market has typically had around 6 months of inventory for sale.

The still-extremely-tight inventory dynamic has helped put a floor under home prices, preventing them from declining further. Until inventory levels can consistently rise back to more normal levels, prices likely won’t fall much more either.

Housing Supply Metrics December 2022 Historic Norms
Months’ Supply of Inventory 3 months 6 months
Total Homes for Sale 970,000 1.5 million
New Listings (December) 511,000 560,000

This inventory picture, when combined with lower mortgage rates fueling demand, sets the stage for home price stabilization in 2023. Significant price drops likely won’t materialize given the still-constrained supply realities.

Builders Ramping Up Construction

On a positive note, homebuilders are catching up with buyer demand by accelerating new home construction. Housing starts surged nearly 10% in December to an annual pace of 1.38 million units.

While below peak levels from early 2022, last month’s starts represent solid builder activity that will lead to more brand-new inventory coming available this year.

The uptick in construction has been led by a rise in permits issued, showing that more projects are getting approved and slated to break ground in the near future.

Housing Construction Activity December 2022
Housing Starts 1,382,000 (annual rate)
Increase from November +9.3%
Building Permits Issued 1,330,000 (annual rate)
Increase from November +1.6%

These positive supply-side trends in both new construction and existing home listings demonstrate that inventory headwinds may be starting to subside. More homes available for buyers to choose from will aid the recovery.

Tailwinds Supporting Housing Rebound

In addition to easing inventory constraints and lower mortgage rates, the overall economic backdrop appears supportive for housing demand and a market turnaround.

The labor market remains strong, with unemployment still near 50-year lows around 3.5%. Consumer balance sheets are also relatively healthy, while wages are rising at a 5% annual clip – well above inflation now below 3%.

This fundamental economic strength combined with deeply-depressed affordability levels could set the stage for a housing recovery to take root and gain momentum in 2023 and 2024.

As Compass CEO Robert Reffkin summed up:

“The market is returning back to fundamentals – solid job growth, strong demographic trends and waning inflationary pressures all set the stage for a significant rebound.”

While risks certainly remain, the housing sector possesses multiple tailwinds that could help buyer demand return in force over the coming year. Home prices and sales may be poised for a durable turnaround after last year’s cooldown.

Outlook for Housing Stocks

Given signs of emerging stability and recovery, investor interest in housing and real estate stocks has risen to start 2023.

Leading analysts see substantial upside potential after the sector lagged badly last year amid the housing downturn and rising recession fears.

Top housing stocks identified as recovery plays include home improvement retailers like Lowe’s (LOW) and Home Depot (HD), homebuilders such as Lennar (LEN) and D.R. Horton (DHI), real estate brokers like Compass (COMP) and Realogy (RLGY), as well as mortgage providers including Rocket Companies (RKT).

As mono share analyst Jack Forehand notes:

“The extreme negative sentiment surrounding housing stocks, combined with very reasonable valuations, point to significant upside from current levels.”

With the télé only beginning to turn for housing, it may be an opportune time for investors to build positions. Stocks tied to the sector appear primed to ride the nascent recovery wave higher.

So while 2023 likely won’t bring a FULL rebound back to 2021’s ultra-hot conditions, the stabilizing indicators suggest a housing recovery is now underway. Buyers, sellers, builders and investors would all welcome steadier market footing after last year’s turbulence.




AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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