Is a Housing Market Recession Upon Us in 2023?

At the end of 2022, the falling housing prices and low activity indicated a sharp decline in home prices. But the housing market has been resilient throughout this year, and the warnings of a housing recession have not materialized.

The current housing market may be experiencing low activity and decreasing prices compared to the peak in 2021 and 2022, and many have warned of a housing recession. However, with new evidence, a housing recession seems debatable.

While demand for housing has fallen, so has the supply. Demand is measured by mortgage rate applications which is at a multi-decade low. However, the lack of inventory has kept housing prices relatively high based on wages.

After the last housing crisis in 2008, home prices were around 90 times the average income. By 2022 they rose to 138 times income which is perceived to be unsustainable. However, other countries like Canada and New Zealand have even higher price-to-income ratios.

This affordability and shortage crisis has kept the prices high despite interest rates rising quickly. Additionally, many high-net-worth earners are still active in real estate syndications due to the price reset.

According to Goldman Sachs, at the beginning of the year, nearly everyone agreed the weak activity and falling real estate prices were signs of a housing market recession. On the other hand, real estate crowdfunding has done exceptionally well.

The Current State of The Housing Market

Yet, the first half of 2023 is over, and the recession prediction hasn’t panned out. There are three main reasons for that: 1. Low activity in the market 2. Housing prices remain relatively high 3. Low activity

The housing market is experiencing low activity in 2023. Housing sales dropped 18% from June 2022 and decreased 3% from May to June 2023. Two factors influence the current low activity in the housing market: rising interest rates and low housing inventory.

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