This is a term that I see getting battered around lately in the media, “housing recession.”
Presently, the Federal Reserve’s aggressive efforts to ratchet up interest rates have spurred concerns that the Boston condo for sale market is heading toward a “housing recession.”
Let’s take a deeper dive into the possibility of a “Boston housing recession.” For starters, mortgage rates nearly doubled in the first half of the year. Builder confidence has declined the most since the 2008 meltdown, and nationally new home sales last month were down 30 percent from the previous year.
Spending on housing accounts for as much as 18 percent of GDP, and the sector typically leads recoveries. So, even as the Biden administration touts the strength of the labor market and consumer spending holds up, a prolonged downturn in the housing market could deepen any potential recession on the horizon for the U.S. economy.
The rise in mortgage rates, driven by the Fed’s rate hikes, priced many would-be Boston condo buyers out of the market. It could get worse if mortgage interest rates continue to rise through 2022 into 2023.
Goldman Sachs economists predicted that home price growth would “slow sharply in the next couple quarters” and fall to 0 percent in 2023.
The deteriorating market has pushed sellers to slash their asking prices. More than a fifth of the homes for sale saw price drops in July, according to Redfin, the highest level the firm has recorded since it started tracking the data in 2012.
According to Jeff Tucker, senior economist at Zillow. Housing inventory growth is leveling off in recent weeks as sellers start to reconsider listing their homes. New listings fell 2.8 percent in July, according to Realtor.com data.
There’s a supply pullback following the demand pullback of earlier this summer.
Once inflation abates, mortgage rates will decline and Boston condo for sale demand will return — there are still just not enough homes for people who want them, so demand is resilient. The supply of existing homes for sale remains below pre-pandemic levels.
Things are going to turn around probably sometime next year, but I’m not sure how positive a turnaround it will be — if it’s going to come back full steam or it’s going to be a lackluster recovery because of the economic backdrop.
First and foremost, the Boston condo for sale market historically has been very resilient in past recessions, so I don’t see any Boston housing recession in the cards thus far. The big unknown, is how far will the Federal Reserve fight on inflation by raising interest rates halt. Will we see hike going into 2023? Most experts say not, but if it does this can have devastating impact on the nations housing market moving forward,
Updated: Boston Real Estate Blog 2022