The Line: Housing Hysteria - Is it Justified?
Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
There’s been a lot of talk about the housing market lately, most of which has been negative. The sharp rise in interest rates is certainly troubling, as is this week’s report that existing homes sales were 4.5% lower in March than a year ago.
But, a deeper dive into the data tells us that things aren’t as bad as the headlines make them out to be.
Let’s start with mortgage rates. According to Freddie Mac, the average 30-year conforming mortgage rate has risen for seven straight weeks, and is currently at 5.11%. That’s the highest average rate since April of 2010, and a huge increase from the 2.97% rate of a year ago.
I know that all sounds scary, but let’s add some historical perspective here:
We were spoiled by record-low interest rates for a good part of the last decade.
The average 30-year rate over the past 50 years is 7.8%.
Rates were averaging around 6.5% in 2006 and 2007, during the housing "bubble."
People were buying houses in April 2010.
The Fed is finally addressing the nation’s inflation problem, which should bring mortgage rates lower over time.
So, while nobody—especially real estate brokers—wants higher rates, history tells us that housing can survive them.
We’ve also heard how existing homes’ sales are declining, as the median price hit a record high of $375,300. That probably has many screaming about another bubble, but let’s look at the facts:
It’s not the end of the world that sales are running below last year, as 2021 saw the most sales in 15 years.
The real problem is a lack of inventory, with just a 2.0-month supply of homes for sale. You hear a lot about how tight supply is in Manhattan, and they have a 5.1-month supply of apartments for sale.
Perhaps the scariest bit of data is that existing homes sold in March spent an average of just 17 days on the market. Could you imagine if that was the NYC number?
To sum up, with rising prices and mortgage rates, housing certainly faces challenges in the months ahead. It’s also clear that fewer homes will be sold in 2022 than 2021—and that’s okay given how strong a year 2021 was.
But the one thing that seems to get left out of these headlines is how strong demand is, which is not surprising given the record number of jobs created last year. The labor market is as strong as it’s ever been, with a 3.6% unemployment rate, 11 straight months of over 400,000 jobs added, and don’t forget: There are still over 11 million available jobs out there.
So, don’t count housing out anytime soon. It still has a lot going for it.