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Recession Could Drive U.S. Home Prices Up

Recession Could Drive U.S. Home Prices Up
3 min. read
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Current U.S. housing market data suggests a drop in supply could be on the horizon, meaning home prices in the country might increase later this year.

According to the Commerce Department, new housing starts decreased in April to a seasonally adjusted annual rate of 891,000 units – the lowest level in five years. This seems to indicate a possible drop in the U.S. housing supply in the following months. At the same time, fixed mortgage rates are at a record low, so those interested in purchasing property at a low rate may not be willing to look for a new home once fixed rates have risen again.

So, although there will likely be a short-term dip in house prices across the country, prospective homebuyers could see the supply of new homes diminished by the economic downturn. If it’s anything like the Great Recession, a lack of homebuilding in the long run could bump prices up.

Record-Low Housing Starts

Recent data points to decreased building activity in the U.S. real estate market. Overall, housing starts dropped 30.2% in April compared to a month ago, marking a five-year low. On a year-over-year basis, homebuilding fell 29.7%.

Accounting for the largest share of the market, single-family homebuilding recorded a 25.4% month-over-month decline to a rate of 650,000 units. Multi-family housing starts dipped as well by 40.5% to a rate of 241,000 units.

Permits for future construction followed suit, dropping to just over 1 million units, or 20.8% overall. Specifically, single-family building permits decreased 24.3% in April to a rate of 669,000 units, while permits for multi-family units dropped 14.2% month-over-month to a rate of 405,100 units.

These factors could mean a reduction in new homes coming onto the U.S. housing market in the future. Census Bureau data shows that it takes about six months to complete a single-family home, which means a decrease in new homes for sale could hit around October this year.

This could have a compound effect, with current delayed starts leading to additional delayed starts in the spring, which could have longer-term consequences. Home values could rise in light of the overall reduction in supply.

Record-Low Mortgage Rates

Low mortgage rates could also push home prices higher. For the past several weeks, U.S. mortgage rates have been at all-time lows. On May 15, the average for 30-year fixed-rate mortgages dropped to 3.09% from 3.23% a couple of weeks earlier. Some lenders are even going as low as 2.75%.

While lower mortgage rates can benefit those who are able to purchase property right now, the rates aren’t great news for others who are waiting for a more accessible housing market once the U.S. economy picks up again.

This is because buyers who take advantage of the lower fixed rates now will likely not want to sell their homes once fixed rates are significantly higher again. When this happens, experts expect to see far less mobility in the housing market.

Census Bureau data shows that people are still purchasing properties, as 627,000 homes were sold in March, and mortgage applications have been rising.

Lower Prices Unlikely

Despite the ongoing recession, the U.S. housing market will likely not be flush with affordable homes, even once the nation’s economy picks up again. While some forecasters are predicting a 2-3% drop in house prices this year, record-low housing starts and mortgage rates could cancel out any price decrease.

A longer-term trend will likely be a more expensive housing market. In February, house prices increased by 3.5% annually, which was faster than expected. Meanwhile, there has been a weak trend in homebuilding since 2009.

Based on the data, another Great Recession (or another Great Depression) could weaken homebuilding once more, so we probably can’t expect a more accessible housing market in the foreseeable future, despite any dips in mortgage rates.


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