When Will the Housing Market Downturn End?

After mortgage rates spiked this past spring, the housing market in the United States pivoted into a downturn. The downturn has caused new and existing home sales to decrease across the country.

The one silver lining builders and agents can look forward to is that the housing market is usually the first into the recession and the first out (FIFO).

The exception was the housing bubble, which saw the housing market slide into a downturn back in 2006. The downturn lasted until 2011 and was three times longer than the Great Recession.

Now people are wondering when this current housing market downturn will run its course. Wells Fargo recently published a housing market outlook report that will shed some light on the situation.

Financing costs are likely going to have a significant effect on housing activity for the next few years. Underlying demand may help to balance it out, however, as young first-time home buyers are entering the market in large numbers.

This demographic, however, will likely be more sensitive to the shift in mortgage rates and is at a higher risk for job loss during a potential recession. If unemployment rises as is expected, home-buying activity is likely to go down even further.

The supply side isn't looking much better. The refinancing boom in 2021 left many mortgage holders with rates below 5%. With mortgage rates hitting around 7% a few weeks ago, sellers don't have any incentive to put their houses on the market.

The current forecast is that a recession will hit in 2023, which will raise the unemployment rate to a 5.4% peak in Q1 of 2024. The increase in unemployment will incentivize many to sell their homes, which will bolster inventory once again.

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