Housing Market Recovery: A Slow Climb Out of the Affordability Crisis, Says Charles Schwab
The housing market is showing signs of recovery, according to a recent report from Charles Schwab. While this doesn't signal a booming expansion, it does indicate an easing from the extreme conditions of the past few years. This recovery, characterised by improved supply, price growth stabilisation, and increased home sales, marks the beginning of what Schwab calls "rolling recoveries" following a series of rolling recessions.
Easing Price Growth and Elevated Prices
The slowing of home price growth is one of the most significant changes. Between 2022 and 2023, prices surged dramatically due to a pandemic-driven buying frenzy. Over the past four years, home prices have soared by 47%, with the median prices of existing and new homes now averaging $412,000 and $433,000, respectively. However, this rapid price growth appears to be tapering off. A recent report from Redfin supports this trend, noting that more sellers are reducing their asking prices, which could further soften sale-price growth in the coming months.
Gradual Increase in Home Sales
Home sales, which plummeted in recent years, are also showing signs of improvement. At the lowest points, home sales fell by 41%, and new-home sales saw a nearly 50% drop. Despite being below their peak levels, both existing and new-home sales have rebounded by 9% and 22%, respectively, from their recent troughs. This steady pickup suggests a slow but positive trend in the housing market.
Surge in New Inventory Supply
The increase in new inventory supply is another positive development. Homebuilders are responding to the unmet demand by accelerating construction. This surge is a response to the pre-pandemic shortage of housing, exacerbated by high mortgage rates that have prevented many homeowners from moving. Despite the challenges, this increase in supply is a crucial factor in addressing the affordability crisis.
Affordability Challenges and the Road Ahead
Affordability remains a significant constraint in the current housing cycle. High mortgage rates and elevated home prices have forced many potential buyers into bidding wars or led them to make substantial financial sacrifices to purchase homes. Last year, the Housing Affordability Index reached an all-time low, but Schwab notes that it is now showing signs of improvement.
The Role of Mortgage Rates
As federal interest rates stabilise near current levels, we expect mortgage rates to continue drifting higher. While this has been a headwind for consumers, Schwab suggests that buyers will gradually adjust to these conditions. The bank emphasises that a full recovery of the housing market doesn't necessarily depend on a dramatic decrease in prices and rates. Instead, stabilisation in activity, price growth, and interest rate volatility will likely provide a more stable foundation for the sector.
A Stabilising Market
In conclusion, while the housing market is not experiencing a booming expansion, the signs of recovery are evident. The slowing price growth, the gradual increase in home sales, and the surge in new inventory supply are all positive indicators. Although affordability challenges persist, the stabilisation of mortgage rates and other market factors provides hope for a more balanced and stable housing market in the near future.