The free fall in housing market activity has just ended, says Capital Economics

But there may finally be some good news for builders and agents: The researchers of Capital Economics believes that activity in the housing market is slowing down.

“There are growing signs that housing market activity may be nearing a trough. The decline in mortgage rates over the past two months has led to a slight improvement in affordability and an increase in home buyer sentiment, even from a record low. Confirming this, mortgage applications for home purchases were higher in the last two months, which should feed into higher sales,” wrote Sam Hallproperty economist at Capital Economics.

It’s not just Capital Economics. there a growing optimism among brokers and agents throughout the country. They hope that the loosening financial conditions, which is seen the average 30-year fixed mortgage rate fall from 7.37% to 6.09% in the last two months, will help give the looming spring season a little juice.

Let’s be clear: Even if housing market activity (ie home sales) is indeed down, it doesn’t guarantee that home sales will recover quickly. After all, housing affordability remains “pressurized” to a historic degree. That will happen when US home prices rise 41% in more than two years and mortgage rates rise from 3% to more than 6% in just 12 months.

“But any recovery in housing market activity this year will be tepid. Tightened affordability, a weak economy and falling home prices will all weigh on activity. As As a result, we expect 2023 to be the weakest year for sales since 2011 and for startups since 2014,” wrote Capital Economics researchers.

Just because US home sales may be near the bottom doesn’t mean we should also pencil in the bottom for US home prices.

“Capacity remains within reach,” wrote researchers at Capital Economics. “We think house prices will need to fall a further 6% or 7% to bring affordability back to a level that will support more normal levels of demand.”

Until October, the Case-Shiller National Home Price Index have US home prices down 2.4% from the peak in June 2022. In 2023, Capital Economics expects US home prices to fall 6% while the average 30-year mortgage rate fell to 5.75% at the end of the year. Head to the trough, Capital Economics expects US home prices to fall between 8% and 10%

Moody’s Analytics chief economist Mark Zandi also thinks U.S. home sales are nearing their bottom as national home prices continue to decline.

“Housing demand (home sales) is near a trough, housing supply (housing starts and completions) has yet to hit, and [U.S.] House prices have a way to go before reaching their nadir,” Zandi said luck.

Head to the trough, Zandi expects US home prices to fall 10%—with “overvalued” housing markets from the West hit hardest.

Let’s say Capital Economics and Moody’s are right and national house prices have fallen 10% from peak-to-trough. If that happens, home prices as measured by Case-Shiller will slide back to October 2021 levels. the second largest house price correction in the Post-WWII era. On the other hand, this compares favorably to the 26% nationwide correction in house prices seen between the peak of the housing bubble in 2007 and the bottom of the housing crash in 2012.

Looking for more housing data? Follow me Twitter on @NewsLambert.

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