A leading real estate economist explains why a recovery in the housing market is expected as rising sales and a lack of supply look poised to lift home prices.
- Nadia Evangelou, senior economist at the National Association of Realtors, sees a rebound coming.
- Easing inflation will lower mortgage rates and limited supply will raise prices.
- In her opinion, the US will be able to avoid both the recession and the housing crisis that others predicted.
While some experts are warning of a looming US housing collapse, Nadia Evangelou, senior economist and director of research at the National Association of Realtors, sees the opposite.
Home prices and sales will fall this year, but she expects a recovery in 2024 when sales pick up and limited supply push prices up.
“It looks like home sales activity has bottomed out and 2023 will be a turning point for the housing market,” Evangelou told Insider. “We don’t expect any housing crisis.”
In fact, some indicators are already becoming positive. The NAR Home Sales Index rose for two consecutive months and posted its biggest monthly gain since June 2020.
To be sure, the Mortgage Bankers Association said that mortgage rates continue to rise, and the hawkish stance of the Federal Reserve will put more pressure on the cost of borrowing.
But Evangelou said inflation could come down faster than expected this year and the US could avoid a recession. This will send mortgage rates down to 6% after they topped 7% in October.
Demand still exceeds supply
The real estate economist said the US continues to suffer from a severe housing shortage that has persisted for more than a decade since the Great Financial Crisis.
“Back in 2008, we had a surplus of about 4 million homes, but now we have less than 1 million,” Evangelou said. “And this is the main factor that keeps house prices from falling.”
On the demand side, she said it will remain elevated, helped by a strong job market. So while buyers are relatively few at the moment due to low inventory levels, housing demand continues to outpace supply, Evangelou said.
While expectations of higher interest rates are weighing on home buyer activity, Evangelou expects the trend to ease in the second half of this year.
NAR predicts home sales could drop as much as 11% this year. In 2024, activity could jump by about 18%, she said.
Similarly, house prices should fall by about 2% this year and then rise by about 3-4% next year, she added. This is much more optimistic than other forecasts.
Economists at the Federal Reserve Bank of Dallas said in a recent article that a 19.5% correction is needed for the housing market to return to its fundamentals.
Goldman Sachs, meanwhile, said house prices across the country would fall 6.1% this year. Cities such as Austin, Seattle, Phoenix and San Francisco could see prices drop by more than 12% next year, given their large increases in inventories, strategists said.
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