The recession in the housing market may be easing. What does house price mean?

Fed Chair Jerome Powell made it clear last summer: Raising mortgage rates will help “reset” the US housing marketwhich has become a buyer’s dream during the pandemic.

Of course, rising mortgage rates won’t build more homes. However, higher rates could theoretically “rebalance” the US housing market by throwing cold water increase in demand for housing during the pandemic, which allows inventory breathing room to increase, and push home prices lower. That’s what happened in the second half of last year, too: Both new and existing homes sold free-fall modewhile US home prices began falling for the first time since 2012.

But fast forward to 2023, and that’s it The free fall in home sales may be over. In fact, just this week Goldman Sachs published a paper titled “2023 Housing Outlook: Finding a Trough.” The paper argues that home sales are declining, while the house price correction there is little running.

“We suspect that existing home sales may decline slightly but likely below Q1,” wrote Goldman Sachs researchers. “We expect a peak-to-trough decline in national house prices of roughly 6% and for prices to stop declining by mid-year. [in 2023]. On a regional basis, we are planning larger reductions throughout the Pacific Coast and Southwest regions.”

To better understand if the US housing market recession actually decreased, luck reached Zonda chief economist Ali Wolf. When he’s not traveling around the country talking to homebuilders, he is advises the White House on housing matters.

Below is the luckQ&A with But Wolf.

Fortune: There are early signs that the demand for housing, which fell last year due to rising mortgage rates, is starting to improve. Did you see it too? If so, is it simply seasonality, or also a result of falling mortgage rates?

There has been an increase in buyer interest since the beginning of the year related to three key factors: seasonality, acceptance, and discounts.

Seasonality: The housing market is traditionally the slowest at the end of a year, returns in January, and will be in full force during the spring sales season starting around the Super Bowl. Early signs are that buyers are buying again. At the moment, it seems that there are more buyers looking than actually signing contracts, but the increase in traffic shows the underlying interest: 38% of builders reported to Zonda that the traffic is stronger than expected in January so far. One important thing to keep an eye on in the coming months is sales inventory. We’ve seen many homeowners delist their homes in November and December when their home didn’t sell as quickly or for as much money as they had hoped. The spring selling season usually brings more inventory with it, so we’re looking to see if these sellers decide to list again during this traditionally stronger time of year for housing.

Acceptance: Consumers are mourning the loss of record low mortgage rates. For example, if a consumer was able to make the monthly payments on a $500,000 home at the beginning of last year, without changing their budget, they are now looking for a home for $350,000. For some consumers, they are unwilling or unable to proceed with a purchase. For others, they enter the acceptance stage. We are in the 10th consecutive week of mortgage rates averaging below 7%. This stability in rates gives consumers little confidence in where the market is right now. Some home sellers and many builders offer financing to help buy interest, with adjustable rate mortgage options and 30-year fixed rate mortgage options.

Discounts: Home builders now represent over 30% of the total housing inventory. Builders are in the business of building and selling homes. As a result, we see builders offering both price reductions and incentives to attract consumers. What we’ve seen happen is that in the first days of the housing slowdown, builders offer moderate price cuts to the tune of 1 or 2% of the base price. All it does is tell consumers that it is reasonable to wait, because house prices are likely to be lower in the future (ie consumers get a deflationary mindset). The builders quickly learned that it is a lot better to “rip the band aid off” with house prices, but to adjust once hard and fast to find the market. As a result, almost 40% of builders have already lowered house prices between 5 and 15%. For consumers, FOBATT [fear of buying at the top] the mentality has calmed down a bit because they no longer wait for the price to drop.

Q: Have builders found success with rate purchases?

Zonda data shows that more than 50% of new home communities nationwide offer some type of incentive to consumers. These incentives can range from extended rate locks to funds for closing costs or mortgage rate upgrade and purchase options. Mortgage rate shops are important builders who pay points to lower the mortgage rate. Builders pay anywhere between $10,000 and $70,000 to lower the rate. For consumers, the main reason they withdraw from the housing market is the shock of affordability. Lower rates, especially when the builder offers a lower rate on a 30-year fixed mortgage, have proven effective in bringing some consumers back into the market. Simply put, purchases are expensive but effective.

Q: Do you have data on how many/how many builders cut prices?

Our December builder survey showed that 43% of builders cut prices every month, while 56% left prices flat. For January, our early reading is that 56% of builders are holding prices flat, 32% are lowering prices, and 12% are increasing. [home prices]. In some markets we have seen average detached new home listing prices down 20% from the peak; in others the current price is still at the peak.

Q: Going to 2023, Zonda predicts that US home prices will fall around 15% peak-to-trough. Have you made any changes to your expectations for US house prices?

We still expect house prices to fall in 2023 compared to 2022, but how deep the decline will depend on: how quickly sellers ‘find the market’ with price cuts, what happens on mortgage rates, how inventory levels are trending, and what will happen. related to a US economy.

Want to stay updated on home improvement? Follow me Twitter on @NewsLambert.

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