Academic journal article ABA Banking Journal

Housing: A Meaningful Correction

Academic journal article ABA Banking Journal

Housing: A Meaningful Correction

Article excerpt

THE CORRECTION IN HOUSING activity has picked up momentum. This is evident in total home sales, weekly mortgage purchase applications, building permits, and construction activity, all of which are well below their peaks. Moreover, the National Association of Home Builders Housing Market Index has fallen to its lowest level since 1995. This index moved into negative territory in May for the first time since 2001.

The downtrend in home sales should persist because affordability has fallen to its lowest level in more than a decade, severely strained by still-high home price inflation as well as higher mortgage rates. With inventories of unsold, new single-family units at record-high levels, new home price inflation is bound to decelerate faster in the months ahead. The adjustment in existing home prices, where appreciation has been extraordinary, should last longer. After all, existing home sales accounted for over 70% of the overall increase in home sales during the latest expansion. Despite outright price declines in some local markets, the national price indices seldom show yearly declines. Affordability is most strained on the West and East Coasts, where home price increases are still up 15-30%.

It helps that the broader economic backdrop remains favorable: solid job and income growth, a persisting relatively flat yield curve, and newly established immigrant populations becoming first-time homeowners. With Fed tightening nearly done, mortgage rates should ease, from about 6.80%--which is still low by historical standards--to about 6.25% by year-end and to 6. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.