Home Values? A Recession?

What's next for the housing market?

The NAHB Housing Market Index, which measures builder confidence, fell 2 points to 67 in June, as expected. Looking at the internals, it’s important to remember that a reading above 50 signals expansion, while a reading below signals contraction:

  • Current Sales: down 1 point to 77

  • Sales Expectations: down 2 points to 61

  • Buyer Traffic: down 5 points to 48 Overall

While these figures have declined significantly from last year, most are still at pretty strong levels. The one concerning item is that traffic has dipped beneath 50, which signals contraction.

The NAHB said, “Residential construction material costs are up 19% year over year, with cost increases for a variety of building input outside of lumber.” They also said that they are seeing less demand due to the increase in mortgage rates, which is reflected in the decline of the traffic measure.

It seems with the rapid increase in mortgage rates along with an influx of inventory to the market, appreciation may cool off in the coming months. This could be a healthy adjustment for housing moving forward.

Contrary to the 2008 housing market crash and the beginning of the 'Great Recession', housing will remain strong as we head into a recessionary period. The key difference is that the recession in 2008 was caused by fraudulent mortgage transactions and a massive default on payments forcing many homeowners into foreclosure. Another key difference is that during that time housing inventory was massive, there were more homes on the market than there were buyers.

In conclusion, we believe that there will be a 'cooling' period for housing allowing for a much needed balancing of inventory but the equity gained in home values over the last few years will hold strong.

With inflation on the rise and consumer debt at an all time high, it may be a great opportunity to consolidate debt and save money while we navigate these murky waters.

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