I’m Austin, CEO and co-founder of Pacaso.As summer officially began last week, the US housing market saw double-digit declines in available homes for sale. However, home builders are stepping up their game by increasing new construction of inventory, reaching the highest levels seen in over a year. Homebuyers are still also showing unwavering interest in actively searching for and purchasing homes despite these challenges. This strong desire to buy and shop in the housing market reflects a resilient and optimistic outlook for the future. As a bonus, the likelihood of a US recession has decreased thanks to the resolution of economic risks.Here are some notable observations:
According to Redfin, the total number of homes for sale in the US dropped by 6% compared to the previous year during the four weeks ending on June 11. This marks the largest decline in inventory in 13 months. New listings also decreased by 23%, continuing a trend of double-digit declines for the past 10 months. These figures reflect the ongoing shortage of inventory in the post-pandemic period, with 39% fewer homes for sale compared to June 2018.
2. Home builders respond to low inventory
In May, housing starts and permits reached the highest level seen in over a year. Housing starts rose to 1.63 million (SAAR) in May, representing a 21.7% increase from the revised figures of April 2023 and a 5.7% increase from May 2022, according to the US Census Bureau. Single-family housing starts (18.5% from April to just under 1 million in May) and housing permits (5.2% gain compared to April)issued in May increased .
3. Home prices continue to rise
According to CoreLogic, home prices across the country experienced a year-over-year increase of 2% in April 2023 compared to April 2022. Home prices also increased by 1.2% in April 2023 compared to March 2023. The record-low inventory and availability of homes for sale has placed significant pressure on prices, resulting in above-average monthly appreciation.
4. Homebuyers respond to declining mortgage rates
Freddie Mac reports that the average daily 30-year fixed mortgage rate was 6.95% on June 14, down from a seven-month high of 7.14% three weeks earlier. Despite ongoing fluctuations, homebuyers have once again responded to the mortgage rates. The Mortgage Bankers Association (MBA) reported an 8% increase in mortgage-purchase applications for the week ending June 9 compared to the previous week, adjusted for seasonal factors. All in all, rates are floating around 7%. While higher interest rates may initially seem unfavorable to real estate investors, they can actually provide unique advantages. By leveraging the earning potential of cash reserves when banks are paying higher interest rates, investors can strategically maximize their returns. In scenarios where mortgage rates are higher but banks offer more attractive interest rates on cash, real estate investors can offset their mortgage expenses and achieve a net positive impact on their investment returns.
5. Likelihood of a U.S. recession diminishes
According to Goldman Sachs Research, the probability of a US recession in the next year has decreased due to the diminishing risk of a disruptive debt-ceiling fight as well as the banking sector's only modest impact on the economy. Economists now project a 25% chance of a recession in the next 12 months, down from their earlier projection of 35% shortly after the failure of Silicon Valley Bank in March. We'll continue to check in with updates, and encourage you to contact us with any questions about a market of interest.