The housing market recovery is underway, but it’s just beginning and will take time, according to a recent First American report.
The revival is being driven largely by buyers undergoing such life events as marriage, child birth, divorce and death, writes Deputy Chief Economist Odeta Kushi.
“Life events always have and always will drive sales activity,” the economist says. “Housing turnover still happens because life happens. (But) broad-based momentum back to ‘normal’ will take time.”
Even with some progress on affordability and a gradual easing in mortgage rates, the broader economic backdrop continues to cloud First Am’s housing market’s outlook. Job growth has softened, inflation remains stubborn, and consumer confidence is subdued, the report points out.
“In this environment, both buyers and sellers remain cautious,” Kushi says.
Existing-home sales are currently running at four million annually, a far cry from the roughly 5.4 million long-term rate. But the gap “reflects suppressed market participation rather than a shortage of potential movers,” Kushi writes.
The recent improvements in affordability have not fully offset years of rapid home price appreciation and elevated borrowing costs, according to the report. Affordability is still more than 65% below its pre-pandemic, five-year average.
As for sellers, psychology remains a major constraint.
“Many home owners continue to hold out for higher prices and are hesitant to list their homes at today’s lower valuations, while others remain locked in by the ultra-low mortgage rates they secured during the pandemic. The result is an unusually high level of seller withdrawal, constraining inventory levels and muting sales activity,” the report notes.
Nevertheless, the existing-home market is showing signs of recovery as early indicators – from rising mortgage applications to improving affordability – suggest that demand is beginning to stir. But “while the direction is encouraging,” Kushi warns, “the scale of the recovery remains limited.”
For September, the company has updated its existing house sales projection to increase 0.6% from August and 3.2% from a year ago. The largest contributors to the gain include a “resilient” economy, greater house-buying power, a weaker lock-in effect and greater credit availability.
