Has the housing market hit its peak? Almost but not quite, according to David Berson, the chief economist at Nationwide. Berson said, “We project that existing home sales will edge up by +1% in 2018 to around 5.56M units which would be the strongest pace of sales since 2006. We expect that this will be the high water mark for sales in this cycle.”
Richard Moody, chief economist with Regions, disagrees with Berson due to the market’s supply – demand imbalance. Moody said, “Given that we see little reason to expect any meaningful relief on the inventory front over the coming quarters, we think it is reasonable to conclude that we’ve passed the cyclical peak for existing home sales.”
Ian Stepherdon of Pantheon Macro joined Moody in their belief that if supply remains stifled, home prices will continue to push higher and higher. Add stagnate supply to rising mortgage interest rates and at some point, Stepherson said that demand would wane. Moody added, “You can withstand some further increase in mortgage rates but at some point, eventually you hit a tipping point on those rates where it erodes affordability.”
The chief economist with Freddie Mac, Sam Khater thinks that existing home sales have already hit the speed limit and that rising interest rates have and will price many out of the market. However, Khan continues to say, “…total sales should continue to go up.”
Khater elaborated. “Here we are 9 years in (this housing cycle)and we’ve had 3 straight years of inventory decline. (Inventory) is not only not expanding, it’s contracting. The concession is that if there’s a recession, it’s a modest, plain-vanilla recession. If that’s the case, I think what it might do is cause inventories to rise modestly and home price growth to slow. The best case is that there would only be an economic recession, not a real estate recession.”
(Most optimistically, Khater is looking back to the 2000-2001 downturn caused by the implosion of the dot-com sector that did not cause the implosion of the housing market. More moderately optimistic, Khan is also looking back to the 2014 downturn when oil prices collapsed in Houston when yearly home price gains decelerated from 12% to 4% but never went negative…people were still able to make their mortgage payments.)
Any way they say it, all of these housing experts couch their market prognostications in caveats. Moody says he believes a housing downturn will come before an economic downturn but that demand would quickly “…settle back and be reflected in less upward pressure on prices.”
Khater believes that whatever happens with the housing market will happen two years out, not now, that some areas will be harder hit than others and that many homeowners have built up a healthy amount of equity in their homes that will provide a good cushion for most if and when a housing downturn occurs…2 years from now.
In the meantime, everyone…eyes open.