The state of the U.S. housing market in 2023 is all about contingencies.
Will inflation be contained by the Fed? Is a recession around the corner? Will a deal get done on the federal debt limit, relieving the pent-up angst that looms over the nation’s economic health?
Against this backdrop, residential real estate has largely remained in a wound-down state from the frenzy of the COVID-19 pandemic — and even into last year, when mortgage rates climbed and cooled the surplus demand among home buyers.
On Monday, Tesla CEO Elon Musk tweeted a gloomy view for current home owners who hope their home values will rise.
“Commercial real estate is melting down fast. Home values next,” Musk tweeted.
Musk has been among the most vocal figures sounding the alarm over the state of commercial real estate in the U.S., which plunged during the pandemic as remote work took hold and businesses downsized offices.
Redfin CEO Glenn Kelman fired back at Musk, tweeting that the very trends undermining commercial real estate play a part in supporting residential markets.
“But the loss in demand for commercial real estate is what’s driving demand for residential real estate,” Kelman replied. “People who work from home need more space at home. Sales volume is down because inventory is down. Today, home prices increased for a second straight month.”
The inventory of existing U.S. homes remains tight, since so many people bought homes when mortgage rates were historically low, competition was high and homes were already in short supply. These home owners largely don’t plan to sell at a time when they are not seeing home prices rise at the rates they were when they purchased, or anywhere close.
Kelman referred to the latest findings of the S&P CoreLogic Case-Shiller US National Home Price index, which rose 0.4% in March. Two consecutive months of increases is significant after seven straight months of declining prices, but the growth in prices is more of an uneven regional trend than a national one.
The Fed’s 10th consecutive rate hike in May is not the most welcome signal for first-time home buyers who have few options to choose from, and even fewer options that are affordable with the 30-year-fixed rate mortgage at about 6.87% on May 31.
Existing home sales dipped 3.4% nationally from March to April to March and were down 22% from a year before, Forbes reported in its overview of the state of the housing market, CNN Business reported. The median existing home price was $388,800 in April, down about 1.7% from a year ago.
“Home sales are bouncing back and forth but remain above recent cyclical lows,” said Lawrence Yun, NAR’s chief economist. “The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”
Nearly halfway through 2023, in a typically busy spring environment, the U.S. housing market still looks to be in a holding pattern surrounded by larger economic headwinds. Musk’s outlook may be premature, but whether Kelman’s view of the current market snapshot will sustain in the coming months looks no less uncertain.
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