Recession Archives

Economic Forecast for Next 5 Years & 10 Years

November 24, 2023 by Marco Santarelli

In this blog post, we will take a closer look at the Economic Forecast 2023 report and its significance in the business world. With the constant fluctuations in the global economy, it is crucial to have a clear understanding of the future economic landscape to make informed decisions.

We will explore the report's key findings, analyze the projections made by leading economists, and discuss how these insights can benefit businesses and investors. By the end of this post, you will have a better understanding of what the Economic Forecast 2023 report entails and how it can help you navigate the complex economic environment.

A recently released report by the Conference Board indicates that economic weakness will continue to intensify and spread throughout the US economy, leading to a recession in mid-2023. The key factors contributing to this outlook are persistent inflation and Federal Reserve hawkishness. The report forecasts that the real GDP growth rate will slow down to 0.7 percent in 2023, with a slight increase to 0.8 percent in 2024.

Although consumer spending has cooled down, it has not decreased as much as previously expected. As a result, the forecast for Q1 2023 real GDP has been raised from 1.0 percent to 2.0 percent. However, the forecast for Q2 2023 has been downgraded from -0.9 percent to -1.8 percent due to base effects from the stronger Q1 data and the March banking crisis.

While the worst of the crisis seems to be over, tight credit conditions and weakened consumer and business sentiment are expected to persist. The Federal Reserve is not expected to pause interest rate hikes until a terminal rate window of 5.25 to 5.50 percent is achieved in Q2 2023.

The report also addresses the issue of inflation. The Conference Board expects to see some progress in the coming quarters, but the path is likely to be bumpy. In Q2 2023, a significant decrease in the reported year-over-year PCE deflator is forecasted due to base effects. However, the fight to tame inflation is expected to continue, and year-over-year inflation readings are expected to remain around 3 percent until 2023 yearend. The Fed's 2 percent target is not expected to be achieved until the end of 2024.

Although labor market tightness is expected to moderate somewhat in the coming quarters, it will remain elevated relative to previous economic downturns. This is expected to prevent the overall economic growth rate from slipping too deeply into contractionary territory and facilitate a rebound in early 2024.

Looking ahead to 2024, the report predicts that overall growth will return to pre-pandemic rates, and inflation will drift closer to 2 percent. The Federal Reserve is expected to bring rates back below 4 percent. However, demographic challenges are likely to keep the labor market tight, presenting an ongoing challenge for the foreseeable future.

Economic Forecast 2023: A Slightly More Optimistic but Fragile Outlook

The Organisation for Economic Co-operation and Development (OECD) has released its latest Interim Economic Outlook, which projects global growth to reach 2.6% in 2023 and 2.9% in 2024. The report states that improved business and consumer confidence, declining food and energy prices, and the reopening of the Chinese economy are contributing factors to this growth.

While headline inflation is expected to recede gradually through 2023 in most G20 countries, core inflation remains persistent. This is due to strong service price increases and cost pressures from tight labor markets. This means that inflationary pressures will require many central banks to maintain high policy rates well into 2024.

Annual GDP growth in the United States is projected at 1.5% in 2023 and 0.9% in 2024. Meanwhile, growth in the Eurozone is projected to be 0.8% in 2023 but pick up to 1.5% in 2024 as the drag on incomes from high energy prices recedes. Growth in China is expected to rebound to 5.3% this year and 4.9% in 2024.

OECD Secretary-General Mathias Cormann commented that the outlook today is slightly more optimistic than the organization’s previous forecasts, but the global economy remains fragile. The report highlights persistent large-scale energy and food market disruptions and Russia's war of aggression against Ukraine as key risks.

Moreover, financial market turbulence and the steady decline in underlying growth prospects could be sources of further disruption. Therefore, more targeted fiscal support and structural reforms are required to revive productivity growth and optimize the recovery and long-term growth prospects.

The report notes that the improvement in the outlook is at an early stage, and risks remain tilted to the downside. The war in Ukraine and its broader consequences is a key concern, and the overall impact of monetary policy changes is difficult to gauge, which could continue to expose financial and banking sector vulnerabilities. Pressures in global energy markets could also reappear, leading to renewed price spikes and higher inflationary pressures.

Monetary policy needs to remain restrictive until there are clear signs that underlying inflationary pressures are lowered durably. Furthermore, fiscal support should be prudent and needs to become more focused on those most in need to mitigate the impact of high food and energy prices.

Better targeting and a timely reduction in overall support would help to ensure fiscal sustainability, preserve incentives to lower energy use, and limit additional demand stimulus at a time of high inflation. Lastly, rekindling structural reform efforts is needed to revive productivity growth and alleviate supply constraints.

This includes enhancing business dynamism, lowering barriers to cross-border trade and economic migration, and fostering flexible and inclusive labor markets that would boost competition, mitigate supply shortages, and strengthen gains from digitalization. While the outlook has slightly improved, it remains fragile, and the risks remain tilted to the downside. Therefore, it is essential to continue with restrictive monetary policies, prudent fiscal support, and structural reforms to revive productivity growth and mitigate supply constraints to ensure a stable and sustainable economic recovery.

The following is a summary of OECD Global Economic Outlook for 2023-2024

Global Growth

Global growth slowed to 3.2% in 2022 due to the impact of the war in Ukraine, the cost-of-living crisis, and a slowdown in China.
Positive signs are emerging, including improving business and consumer sentiment, falling food and energy prices, and the full reopening of China.
However, global growth is projected to remain below trend rates in 2023 and 2024, at 2.6% and 2.9% respectively, with policy tightening continuing to take effect.

Regional Growth Projections

Annual GDP growth in the United States is projected to slow to 1.5% in 2023 and 0.9% in 2024.
Growth in the euro area is projected to be 0.8% in 2023, but pick up to 1.5% in 2024.
Growth in China is expected to rebound to 5.3% this year and 4.9% in 2024.

Inflation

Headline inflation is declining, but core inflation remains elevated due to strong service price increases, higher margins in some sectors, and cost pressures from tight labor markets.
Inflation is projected to moderate gradually over 2023 and 2024 but to remain above central bank objectives until the latter half of 2024 in most countries.

Risks and Uncertainties

Risks have become somewhat better balanced, but remain tilted to the downside.
Uncertainty about the course of the war in Ukraine and its broader consequences is a key concern.
Pressures in global energy markets could also reappear, leading to renewed price spikes and higher inflation.

Policy Recommendations

Monetary policy needs to remain restrictive until there are clear signs that underlying inflationary pressures are lowered durably.
Fiscal support to mitigate the impact of high food and energy prices needs to become more focused on those most in need.
Rekindling structural reform efforts is essential to revive productivity growth and alleviate supply constraints.
Enhanced international cooperation is needed to help overcome food and energy insecurity, assist low-income countries service their debts, and achieve a better-coordinated approach to carbon mitigation efforts.

Economic Forecast for the Next 5 to 10 Years [2023 to 2033]

The US economy has experienced significant changes in recent years, including unprecedented events like the COVID-19 pandemic, political changes, and a global economic downturn. As we move forward, many people are interested in knowing what the future holds for the US economy over the next five to ten years. This section of the article provides an economic forecast for the next five to ten years, with a focus on economic output, inflation, interest rates, and the labor market.

The CBO's economic projections provide valuable insights into the US economy's future. While the US economy is projected to experience some challenges, including a tight labor market and rising interest rates, the economy is expected to continue growing, with a projected growth rate of 2.4 percent per year from 2024 to 2027.

Inflation is also expected to gradually decrease over the next few years, approaching the Federal Reserve's long-term goal of 2 percent by 2026. Interest rates are projected to rise in the near term but then gradually fall beginning in late 2023. The labor market is expected to be tight in the near term, with the unemployment rate projected to increase before gradually declining over the next few years.

These projections provide useful information for individuals, businesses, and policymakers as they plan for the future. However, it is important to note that economic forecasts are subject to uncertainty and can be influenced by a variety of factors, including unexpected events and changes in economic policy.

Economic Output

The Congressional Budget Office (CBO) projects that the US economy's output, or gross domestic product (GDP), will stop growing early this year in response to last year's sharp rise in interest rates. However, output is expected to start growing again during the second half of 2023, as falling inflation allows the Federal Reserve to reduce interest rates, causing rebounds in sectors of the economy that are sensitive to interest rates.

In CBO's projections, the growth of GDP comes to a halt in early 2023, mainly because of the sharp rise in interest rates last year, and then resumes at a slow pace. For 2023 as a whole, real GDP (that is, GDP adjusted to remove the effects of inflation) is projected to grow by just 0.1 percent. The growth of real GDP is projected to speed up thereafter, averaging 2.4 percent a year from 2024 to 2027, in response to declines in interest rates.

Inflation

Inflation was higher in 2021 and 2022 than in any other years of the previous four decades, with a rate of 5.7 percent and 5.5 percent, respectively, as measured by the price index for personal consumption expenditures. The annual growth of that price index is projected to remain above the Federal Reserve's long-term goal of 2 percent through 2024 and then fall near to that goal by 2026.

However, CBO projects that inflation will slow gradually in 2023 as pressures ease from the factors that have caused demand to grow more rapidly than supply in recent years. The PCE inflation is projected to be 3.3 percent in 2023 and 2.4 percent in 2024. PCE inflation is projected to continue declining thereafter, approaching the Federal Reserve's long-run goal of 2 percent by 2026.

Of the categories that make up the PCE price index, food, energy, and shelter-related services are projected to experience the largest slowdowns in price growth in the next few years.

Interest Rates

Interest rates on Treasury securities are projected to rise further in early 2023 and then gradually fall beginning in late 2023. In CBO's projections, interest rates on short-term Treasury securities move largely in concert with the federal funds rate, which the Federal Reserve sets. In the near term, CBO expects the federal funds rate to rise to 4.5 percent by the end of 2023 and to remain at that level for several years.

CBO has increased, on average, its projections of short- and long-term interest rates over the next five years, mostly because it has raised its near-term projections of inflation since May 2022.

Labor Market

The labor market is expected to be tight in the near term, with the unemployment rate projected to increase from 3.6 percent at the end of last year to 5.1 percent at the end of 2023 before gradually declining to 4.5 percent by the end of 2027.

Economic Outlook for 2028 to 2033: Projections and Analysis

This section will examine the CBO’s projections for income, GDP, and the overall economic outlook for the five years, between 2028 to 2033. The CBO’s economic projections for 2028–2033 indicate that the economy is projected to grow at its maximum sustainable output. However, this projection is subject to a high degree of uncertainty, and the actual economic growth rate could be affected by various factors. Despite this uncertainty, the projections offer insights into the potential growth rate of the economy, which is an essential consideration for policymakers, investors, and businesses alike.

Projected Growth of Real Potential GDP

The CBO projects that real potential GDP will grow at an average rate of 1.8% annually between 2028 and 2033. This growth rate is similar to the average annual growth rate of real potential GDP since 2007. However, this overall growth rate conceals two distinct components of growth: potential labor force growth and potential labor force productivity growth.

The potential labor force is projected to grow more slowly annually over the 2028–2033 period than it has since 2007, on average. In contrast, potential labor force productivity is expected to grow more rapidly than it has since 2007.

Projected Growth of Real GDP

Real GDP is projected to grow at an average rate of 1.8% annually between 2028 and 2033, the same rate as real potential GDP. This projection suggests that the economy will be operating at its maximum sustainable output over the next five years. However, this projection is subject to a high degree of uncertainty.

Projections of Income for 2023 to 2033

The CBO projects that nominal gross domestic income (GDI), which represents the total income earned in the production of GDP, will grow moderately through 2033. The projection estimates that nominal GDI will grow by 3.1% in 2023, an average of 4.8% in 2024 and 2025, and an average of 4.0% from 2026 to 2033. By the end of 2025, the nominal GDI is projected to be 35% higher than it was before the pandemic. By the end of 2033, it is expected to be 85% higher than before the pandemic.

Uncertainty About the Economic Outlook

The projections offered by the CBO are subject to a high degree of uncertainty. This uncertainty stems from a range of factors, including the effect of higher interest rates on overall demand, the easing of supply-chain disruptions, and labor market participation. Additionally, the growth of potential output in the aftermath of the pandemic could be faster or slower than expected.

Understanding the US Economic Cycle

The US economy goes through a cycle of expansion and recession, which has a significant impact on the country's economic growth, employment, and overall well-being. To help policymakers, researchers, and businesses understand the current state of the economy, the National Bureau of Economic Research (NBER) maintains a chronology of US business cycles.

What is Business Cycle Dating?

Business cycle dating is the process of identifying and dating the peaks and troughs of economic activity in an economy. The NBER's Business Cycle Dating Committee is responsible for determining the beginning and end dates of recessions and expansions in the US economy. The committee's chronology helps to provide a comprehensive understanding of the US economic cycle and serves as a reference point for policymakers, businesses, and researchers.

Understanding the Business Cycle

A business cycle is a period of economic expansion followed by a period of economic contraction. During the expansion phase, economic activity, such as employment, production, and consumption, increases, leading to economic growth. However, economic growth cannot continue indefinitely, and eventually, the economy reaches its peak. At this point, economic activity begins to slow down, leading to a recession.

The NBER defines a recession as a significant decline in economic activity that lasts more than a few months, affecting the economy broadly, and spread across different sectors. In contrast, an expansion is the period between a trough and a peak, during which economic activity increases. Most recessions are brief, and the economy typically returns to its previous peak level of activity or trend path.

How is Business Cycle Dating Done?

To determine the peaks and troughs of the US economy, the NBER's Business Cycle Dating Committee uses a range of monthly and quarterly measures of aggregate real economic activity published by federal statistical agencies. These measures include real personal income less transfers, nonfarm payroll employment, real personal consumption expenditures, wholesale-retail sales adjusted for price changes, and industrial production.

The committee makes a separate determination of the calendar quarter of a peak or trough, based on measures of aggregate economic activity over the relevant quarters. Two measures that are important in the determination of quarterly peaks and troughs, but that are not available monthly, are the expenditure-side and income-side estimates of real gross domestic product (GDP and GDI).

The committee considers these measures and weighs them based on their relevance to the current economic climate. There is no fixed rule about what measures contribute information to the process or how they are weighted in the committee's decisions. In recent decades, the two measures the committee has put the most weight on are real personal income less transfers and nonfarm payroll employment.

Why Business Cycle Dating Matters

Business cycle dating is essential in understanding the current state of the economy and its historical performance. By identifying the peaks and troughs of economic activity, policymakers can develop strategies to mitigate the negative effects of economic downturns and take advantage of economic upturns. Businesses can also use this information to plan their operations and investments.

Moreover, the NBER's business cycle chronology can help researchers understand the causes and consequences of economic cycles. Studying the historical performance of the US economy can provide insights into how economic policies, technological innovations, and external shocks can affect the economy and its various sectors.

Sources

https://www.cbo.gov/publication/58957
https://www.conference-board.org/research/us-forecast
https://www.oecd.org/economic-outlook/march-2023/
https://www.oecd.org/newsroom/economic-outlook-slightly-more-optimistic-but-fragile.htm
https://www.nber.org/research/business-cycle-dating
https://www.nber.org/research/business-cycle-dating/business-cycle-dating-procedure-frequently-asked-questions

If The Housing Market Crashes What Happens To Interest Rates?

November 22, 2023 by Marco Santarelli

There is a lot of speculation in the media that the slowing housing market is an indication that the market is headed for a housing crash. People who recall the subprime mortgage crisis are concerned that the recent spike in home prices followed by a pause signals the bursting of another housing bubble. But is the housing market truly in a bubble?

During a housing market crash, the value of a home decreases. You will find sellers that are eager to reduce their asking prices. Sellers may be more motivated to bargain on price or make concessions to buyers. Due to the crash, there may also be short sales and foreclosures, offering you the opportunity to acquire a deal. Many homebuyers may feel that obtaining a mortgage is too risky.

Recessions are temporary pauses in an otherwise booming economy, but they have an impact on the housing market and interest rates. This break, however, may be an excellent moment to purchase or refinance a property. Discuss with your lender how recessions affect interest rates, how you might reduce your mortgage rate, and how to mitigate your homebuying risk. Now, it's more likely that home prices will not crash, and will continue to rise, although at a slower pace.

There is a lower likelihood that a borrower would default on a mortgage. New laws and lessons learned from the 2008 financial crisis have resulted in tougher lending criteria in today's housing market compared to the previous one. Mortgage approval rates today are lower than they were in the pre-crisis era, which suggests that borrowers are less likely to default on their loans. Before the previous housing crash, it was popular for lenders to issue so-called “no-doc loans,” which did not require borrowers to submit proof of their income.

A minimum credit score and a minimum down payment are often required for government-backed loans. According to regulations, lenders must now check a borrower's capacity to repay the loan, among other conditions. Lending standards have tightened and new mortgage credit scores are substantially higher on average now than they were in the early 2000s.

It is also important to keep in mind that a recession will not have a significant impact on home prices if the supply and demand for housing fall at about the same time. Interest rates are one factor that may make a difference. Reduced mortgage rates and consequently lower house costs can bring properties that were previously out of reach within reach. You stand a better chance of your application being approved if you've got good credit.

What Happens to Interest Rates if the Housing Market Crashes?

In a recession, people do not spend, money does not move freely across the economy. They decide against spending and instead save for a better price the next day. Or they save money and do not spend it because they believe they should have precautionary savings. This is true for any industry, including real estate or the housing market.

The Federal Reserve may alter interest rates soon in an effort to minimize economic damage. Occasionally, this helps stabilize markets and boost consumer confidence, resulting in increased expenditure. The adjusted interest rate is used by lenders to determine their interest rates for loans and mortgages in any way possible.

Loans aren't in high demand during a recession since individuals are reluctant to spend money and want to preserve it. Mortgages come in a variety of forms, and each has its advantages and disadvantages, regardless of the economic climate. It's up to you to decide how much risk you're willing to take, but your lender may provide guidance.

The Great Recession left an everlasting imprint on future housing markets. During that period of economic downturn, a greater number of homeowners had mortgages that were upside-down, which means that they owed more on their property than it was worth. As a result of the turmoil that was caused by unemployment and the high levels of consumer debt, lenders were obliged to evaluate in a more strict manner.

The graph below depicts the average 30-year fixed-rate mortgage based on Freddie Mac data obtained from FRED at the Federal Reserve Bank of St. Louis. The shaded areas represent U.S. recessions. The most recent recession, which ran from February to April of 2020, was the COVID-19 pandemic.

Freddie Mac's weekly survey indicates that during this brief period, the 30-year fixed mortgage rate declined from 3.45 percent to 3.23 percent. Thereafter, rates continued to decline, reaching record lows in January 2021. Throughout the Great Recession, which lasted from December 2007 to June 2009, 30-year fixed mortgage rates fluctuated between 6.10 and 5.42 percent.

The Great Recession was sparked by the mortgage crisis, which led the global financial system to collapse. From March 2001 to November 2001, during the early 2000s recession, mortgage rates decreased from 6.95 percent to 6.66 percent. From July 1990 to March 1991, during the recession of the early 1990s, mortgage rates declined from around 10 percent to 9.5 percent.

In the early 1990s recession, which was from July 1981 to November 1982, interest rates fell from 16.83 percent to 13.82 percent. From January 1980 to July 1980, rates decreased rather slowly, from 12.88 percent to 12.19 percent. In every instance, mortgage rates decreased during a recession. Obviously, the reduction varied from as little as 0.22 percent to as much as around 3 percent.

The lone exception was the 1973-1975 recession, which was caused by the 1973 oil crisis and saw rates rise from 8.58 to 8.89 percent. That was a time of so-called stagflation, which, according to some analysts, is reoccurring but remains to be seen. Homeowners, potential house purchasers, and the mortgage sector will all be hoping for the latter, a large fall in mortgage rates.

Many economists equate the 1980s to the present day, so it's feasible that we'll finally see significant respite. How much farther will mortgage rates rise before a recession, if one occurs at all, is the question. Will the 30-year fixed rate continue to rise to 7 or 8 percent by the end of 2022 or the beginning of 2023, then decrease to 6 percent?

If this is the case, any fall associated with a recession would simply return rates to their current elevated level. In other words, brace for the worst while the Fed does its utmost to combat inflation and hope for a swift recovery. In either case, you may wish to bid farewell to mortgage rates between 3 and 4 percent, at least for the foreseeable future.

What Happens to My Mortgage if the Housing Market Crashes?

The 2008 housing crash imposed an enormous financial burden on US households. As house prices fell by 30 percent nationwide, roughly 1 in 4 homeowners was pushed underwater, eventually leading to 7 million foreclosures. After a housing bubble burst, property values in the United States plunged, precipitating a mortgage crisis. Between 2007 and 2010, the United States subprime mortgage crisis was a transnational financial crisis that led to the 2007–2008 global financial crisis.

It was precipitated by a sharp decrease in US house values following the bursting of a housing bubble, which resulted in mortgage delinquencies, foreclosures, and the depreciation of housing-related assets. The Great Recession was preceded by declines in home investment, which were followed by declines in consumer expenditure and subsequently business investment. In regions with a mix of high family debt and higher property price decreases, spending cuts were more pronounced.

The housing bubble that preceded the crisis was financed with mortgage-backed securities (MBSes) and collateralized debt obligations (CDOs), which initially provided higher interest rates (i.e., greater returns) than government securities as well as favorable risk ratings from rating agencies. Several large financial institutions collapsed in September 2008, resulting in a huge interruption in the supply of credit to businesses and individuals, as well as the commencement of a severe worldwide recession.

When property values in the United States fell precipitously after peaking in mid-2006, it became more difficult for borrowers to restructure their loans. Mortgage delinquencies skyrocketed as adjustable-rate mortgages began to reset at higher interest rates (resulting in higher monthly payments). Securities backed by mortgages, notably subprime mortgages, were extensively owned by financial firms throughout the world and lost the majority of their value.

Global investors also curtailed their purchases of mortgage-backed debt and other assets as the private financial system's ability and willingness to support lending declined. Concerns over the health of US credit and financial markets led to credit tightening globally and a slowing of economic development in the US and Europe.

Here's Why This Housing Slowdown Is Unlike Any Other

There aren’t as many risky loans or mortgage delinquencies, although high home prices are forcing many people out of the market. But if the Great Recession was triggered by a 2007-08 housing market crash, is today's market in a similar predicament? No, that's the simplest response. Today, the housing market in the United States is in much better shape. This is in part due to the stricter lending laws that were implemented as a result of the financial crisis. With these new guidelines, today's borrowers are in a far better position.

The average borrower's FICO credit score is a record high 751 for the 53.5 million first-lien home mortgages in the United States today. In 2010, it was 699, two years after the collapse of the banking industry. Considerably this is reflected in the credit quality as lenders have become much more rigorous about lending. As a result of pandemic-fueled demand, home prices have risen over the previous two years. Now homeowners have historic levels of equity in their homes.

According to Black Knight, a provider of mortgage technology and analytics, the so-called tappable equity, which is the amount of cash a borrower may withdraw from their house while still leaving 20% equity on paper, set a new high of $11 trillion this year. That's a 34% rise over the same period last year. Leverage, or the ratio of a homeowner's debt to the value of his or her house, has declined precipitously at the same time.

This is the lowest level of mortgage debt in US history, at less than 43 percent of home prices. When a borrower has more debt than the value of their house, they have negative equity. When compared to 2011, when over one-fourth of all borrowers were underwater, this is an improvement. Only 2.5% of borrowers have equity in their houses less than 10%. If property values do decline, this will give a significant amount of protection.

Just 3 percent of mortgages are past due, which is a record low for mortgage delinquencies. There are still fewer past-due mortgages now than before the epidemic, despite the dramatic rise in delinquencies during the first year. There are still 645,000 borrowers in mortgage forbearance programs connected to the pandemic that has helped millions of people recover.

Even though the pandemic-related forbearance programs have been exhausted by some 300,000 debtors, they are still overdue. Even though mortgage delinquencies are still at historically low levels, recent loan originations have seen a rise in the number of defaults.

The most pressing issue in the housing market right now is home affordability, which is at an all-time low in most regions. While inventory is increasing, it is still less than half of what it was before the pandemic. Rising inventory may ultimately chill house price rise, but the double-digit rate has shown to be extremely resilient thus far. As rising home costs begin to strain some buyers' finances, those who remain in the market should expect less competitive circumstances later in the year.

Home Values May Decline Regardless of a Recession

The housing market is based on a supply and demand cycle. A buyer's market exists when there is a big inventory of properties for sale, and property prices tend to decline. When inventory is low, however, residences are in high demand and the market shifts to a seller's market. It takes time to develop new dwellings and replenish supplies.

Housing prices will begin to fall if inventory grows and demand is fulfilled. Another reason that property prices have lately slowed is that individuals can no longer afford them. Income levels have not kept pace with house costs, and many first-time buyers who are still saddled with college loans cannot afford the extra weight of a mortgage.

The current housing inflation storm is driving buyers out of the market, contributing to the protracted period of extremely limited inventory—but sellers are still hesitant to lower prices. Waiting may be the best option for purchasers with time, regardless of whether there is a recession. According to Realtor.com, the number of houses for sale increased by the most in June 2022 on record. Active listings increased 18.7 percent year on year, but property prices remain persistently high.

In June, the national median listing price for active properties increased 16.9 percent from the previous month to $450,000. So far, property prices are up 31.4 percent from June 2020. It may take some time for values to fall because sellers are still trying to obtain top money for their property. Sellers are attempting to price their houses in line with recent comparables that closed in 2021—when mortgage rates were still at record lows and inventory was scarce.

However, many purchasers are waiting to see what happens in the autumn housing market, when there will be more inventory as well as greater competition. There is a lack of consensus on whether or not now is a good moment to purchase a house. In contrast to the most recent housing crash, which occurred during the financial crisis of 2008, we are currently experiencing growing inflation while job levels continue to be solid. The majority of economists were surprised by how quickly jobs were added in June.

The jobs market has been seen as the bulwark against a recession, and June’s numbers show that the employment pillar remains strong. Job growth accelerated at a much faster pace than expected in June, indicating that the main pillar of the U.S. economy remains strong despite pockets of weakness. Nonfarm payrolls increased 372,000 in the month, better than the 250,000 Dow Jones estimate and continuing what has been a strong year for job growth, according to data from the Bureau of Labor Statistics.

“The strong 372,000 gain in non-farm payrolls in June appears to make a mockery of claims the economy is heading into, let alone already in, a recession,” said Andrew Hunter, senior U.S. economist at Capital Economics.

The years that you anticipate living in the house is another factor that might play a role in determining whether or not you should buy it right away. Those who do not intend to remain in the house for at least five years after the purchase may end up losing money if the housing market experiences a crash after the purchase and they decide to sell. On the other side, attempting to time the market incorrectly might result in you missing out on the opportunity to purchase your ideal house.

You may be priced out of the market if interest rates continue to climb and home prices do not fall by an amount that is sufficient to compensate for high mortgage expenses. Buyers are in a better position to take advantage of the increasing availability of houses now that sellers are asking for more reasonable prices for their properties. If there is a downturn in the economy, mortgage interest rates will very certainly fall to about 4 percent or even lower. If it does, it could be a good time to hold off and save some money, especially for first-time homeowners.

Sources

https://www.forbes.com/advisor/mortgages/real-estate/housing-market-recession/
https://www.thetruthaboutmortgage.com/mortgage-rates-vs-recessions/
https://www.chase.com/personal/mortgage/education/financing-a-home/effects-of-recessions-on-mortgages
https://www.cnbc.com/2022/06/20/heres-why-this-housing-downturn-is-nothing-like-the-last-one.html

Housing Market Crash: What Happens to Homeowners if it Crashes?

November 22, 2023 by Marco Santarelli

How Does a Market Crash Affect Homeowners?

If home values fall quickly, purchasers may find themselves with underwater mortgages, which means they must either stay in the house until the market recovers or sell and lose money. Homeowners owe more on their mortgages than their homes were worth and can no longer just flip their way out of their homes if they cannot make the new, higher payments. Instead, they will lose their homes to foreclosure and often file for bankruptcy in the process. The housing crash begins to take its toll on homeowners and the real estate market.

The housing market has encountered significant obstacles over the previous century, but none, with the exception of the Great Depression of 1929, contributed to the decline in home prices that occurred during the Great Recession of 2007. Neither the 20 percent interest rates of the early 1980s nor the devastation of the savings and loan sector in the early 1990s led to a similar drop in property values.

<<<Also Read: Will the Housing Market Crash in 2023? >>>

It is also worth remembering that not all economic downturns chill the property market. In reality, throughout the 2001 recession, the housing market and house demand remained strong despite the economic slump. Throughout the course of the last century, the housing market has been subjected to a number of significant obstacles; but, with the exception of 1929's Great Depression, none of these problems have resulted in a decline in home values on par with that of 2007's Great Recession.

The interest rates of 20 percent in the early 1980s and the devastation of the savings and loan business in the early 1990s did not lead to a similar drop in the value of homes. It is also important to note that the housing market is not always affected negatively by recessions. Despite the fact that the economy was in a slump during the recession that began in 2001, the housing market and demand for homes continued to be healthy.

The previous housing bubble in the United States in the mid-2000s was caused in part by another bubble, this time in the technology industry. It was intimately tied to, and some believe was the cause of, the 2007-2008 financial crisis. During the late 1990s dot-com bubble, many new technology companies' stock was purchased quickly. Speculators bought up the market capitalizations of even firms that had yet to create earnings. By 2000, the Nasdaq peaked, and when the tech bubble burst, many high-flying equities plummeted.

After the dot-com bubble bust and stock market crisis, speculators fled to real estate. In response to the technology bust, the U.S. Federal Reserve lowered and maintained interest rates. This rush of money and credit met with government programs to encourage homeownership and financial market developments that improved real estate asset liquidity. More people bought and sold homes as home prices soared.

What Happened to Homeowners When The Housing Market Crashed?

In the next six years, the homeownership craze developed as interest rates fell and lending standards were relaxed. An increase in subprime borrowing began in 1999. Fannie Mae made a determined attempt to make home loans more accessible to borrowers with weaker credit scores and funds than are generally needed by lenders. The intention was to assist everyone in achieving the American dream of homeownership.

Since these customers were deemed high-risk, their mortgages had unconventional terms, such as higher interest rates and variable payments. In 2005 and 2006, 20% of mortgages went to persons who didn't meet regular lending conditions. They were called Subprime borrowers. Subprime lending has a higher risk, given the lower credit rating of borrowers.

75% of subprime loans were adjustable-rate mortgages with low initial rates and a scheduled reset after two to three years. Government promotion of homeownership prompted banks to slash rates and credit criteria, sparking a house-buying frenzy that drove the median home price up 55% from 2000 to 2007. The US homeownership rate had increased to an all-time high of 69.2% in 2004.

During that same period, the stock market began to rebound, and by 2006 interest rates started to tick upward. Due to rising property prices, investors stopped buying homes because the risk premium was too great. Subprime lending was a major contributor to this increase in homeownership rates and in the overall demand for housing, which drove prices higher.

Borrowers who would not be able to make the higher payments once the initial grace period ended, were planning to refinance their mortgages after a year or two of appreciation. As a result of the depreciating housing prices, borrowers’ ability to refinance became more difficult. Borrowers who found themselves unable to escape higher monthly payments by refinancing began to default.

There was an increase in the number of foreclosures and properties available for sale as more borrowers defaulted on their mortgages. A drop in housing prices resulted, in lowering the equity of homeowners even more. Because of the fall in mortgage payments, the value of mortgage-backed securities dropped, which hurt banks' overall value and health. The problem was rooted in this self-perpetuating cycle.

By September 2008, average US property prices had fallen by more than 20% since their peak in mid-2006. Because of the significant and unexpected drop in house values, many borrowers now have zero or negative equity in their houses, which means their properties are worth less than their mortgages. As of March 2008, an estimated 8.8 million borrowers – 10.8 percent of all homeowners – were underwater on their mortgages, a figure that is expected to have climbed to 12 million by November 2008.

By September 2010, 23 percent of all homes in the United States were worth less than the mortgage loan. Borrowers in this circumstance have the incentive to default on their mortgages because a mortgage is normally non-recourse debt backed by real estate. As foreclosure rates rise, so does the inventory of available homes for sale.

In 2007, the number of new residences sold was 26.4 percent lower than the previous year. The inventory of unsold new houses in January 2008 was 9.8 times the sales volume in December 2007, the highest value of this ratio since 1981. Furthermore, about four million existing residences were for sale, with around 2.2 million of them being unoccupied.

The inability of Homeowners To Make Their Mortgage Payments

The inability of homeowners to make their mortgage payments was primarily due to adjustable-rate mortgage resetting, borrowers overextending, predatory lending, and speculation. Once property prices began to collapse in 2006, record amounts of household debt accumulated over the decades. Consumers started paying off debt, which decreases their spending and slows the economy for a prolonged period of time until debt levels decreased.

Housing speculation using high levels of mortgage debt drove many investors with prime-quality mortgages to default and enter foreclosure on investment properties when housing prices fell. As prices fell, more homeowners faced default or foreclosure. House prices are projected to fall further until the inventory of unsold properties (an example of excess supply) returns to normal levels. According to a January 2011 estimate, property prices in the United States fell by 26 percent from their high in June 2006 to November 2010, more than the 25.9 percent decrease experienced during the Great Depression from 1928 to 1933.

There were roughly 4 million finalized foreclosures in the United States between September 2008 and September 2012. In September 2012, over 1.4 million properties, or 3.3 percent of all mortgaged homes, were in some stage of foreclosure, up from 1.5 million, or 3.5 percent, in September 2011. In September 2012, 57,000 houses went into foreclosure, down from 83,000 the previous September but still far over the 2000-2006 monthly average of 21,000 completed foreclosures.

A variety of voluntary private and government-administered or supported programs were implemented during 2007–2009 to assist homeowners with case-by-case mortgage assistance, to mitigate the foreclosure crisis engulfing the U.S. During late 2008, major banks and both Fannie Mae and Freddie Mac established moratoriums (delays) on foreclosures, to give homeowners time to work towards refinancing In 2009, over $75 billion of the package was specifically allocated to programs that help struggling homeowners. This program is referred to as the Homeowner Affordability and Stability Plan.

Is There a Housing Bubble in 2022?

When a new generation of homebuyers enters the market, housing bubbles often arise naturally as a result of population expansion. As a result of this expansion, the demand for housing is expected to rise. Speculators, excellent economic circumstances, low-interest rates, and a wide variety of financing alternatives are all elements that will lead to an increase in home values. Increased demand drives up costs because of the building time lag. Any time housing prices diverge significantly from demographically-based organic demand, the broader economy is at risk of entering a state of crisis.

The COVID-19 pandemic did not slow home prices at all. Instead, it skyrocketed. In September 2020, they were a record $226,800, according to the Case-Shiller Home Price Index. According to the National Association of Realtors, the sales rate hit 5.86 million houses in July 2020, rising to 6.86 million by October 2020, surpassing the pre-pandemic record. Many people were taking advantage of the low-interest rates to purchase either residential properties or income-based flats that appeared to be inexpensive.

Home prices rose 18.8% in 2021, according to the S&P CoreLogic Case-Shiller US National Home Price Index, the biggest increase in 34 years of data and substantially ahead of the 2020s 10.4% gain. The median home sales price was $346,900 in 2021, up 16.9% from 2020, and the highest on record going back to 1999, according to the National Association of Realtors. Home sales had the strongest year since 2006, with 6.12 million homes sold, up 8.5% from the year before.

As speculators entered the market, home prices skyrocketed, exacerbating the housing market bubble. Now it reaches a time when home prices are no longer affordable to buyers. Rising prices make properties unsustainable, causing them to be overpriced. In other words, pricing increases. Low inventory, fierce competition, and large price increases have harmed purchasers since 2020, but quickly rising mortgage rates are making it much more difficult to find an affordable house.

As prices become unsustainable and interest rates rise, purchasers withdraw. Borrowers are discouraged from taking out loans when interest rates rise. On the other side, house construction will be affected as well; costs will rise, and the market supply of housing will shrink as a result. In contrast to a sudden jump, a sustained rise in interest rates will inflict little damage on the housing market.

Rising rent costs and mortgage rates, which increased from an average of just 3.2% at the beginning of the year to 5.81 percent by mid-June, have increased the cost of housing, pricing many individuals out of the market. This has resulted in a decline in house sales since an increasing number of individuals are unable to buy homes at the present inflated prices. According to NAR, existing-home sales declined for the fourth consecutive month in May, falling 3.4% from April and 8.6% from the same period last year.

Given the relative scarcity of available homes, the majority of analysts concur that a decline in housing prices is improbable. In addition to rising mortgage rates and subsequently less demand, a downturn might exert downward pressure on home prices. Despite many similarities to the housing bubble of 2008, the present housing market is quite different from it.

Homeowners with mortgages are not at a high risk of default, housing values are mostly determined by supply and demand rather than speculation, and lending rates continue to rise. Accordingly, the concept of a housing market crash is deemed improbable by a number of industry professionals. Many analysts believe that sky-high mortgage rates and the associated drop in housing demand will moderate the increase of home prices rather than result in any significant reversal in prices or a crash, which is generally defined as a widespread drop in home prices.

However, in the event that a more widespread recession hits the economy of the United States, the conditions might be created for a little decline in housing values. A deeper and more widespread economic downturn is likely to prompt a greater number of homeowners to sell their homes than would be the case otherwise. Because of the rise in available inventory, housing prices could experience some leveling out as a result.

It is also possible that a recession may just serve to limit the increase of property values, which is what many people anticipate would happen if interest rates continue to climb. However, it is still challenging to bring prices down because there are only limited properties available for purchase. The number of people applying for mortgages has already dropped by more than 50 percent since this time last year. It is not unrealistic to foresee a further decline in home demand given the impending implementation of additional rate increases. This will serve to rebalance the housing market, which is now squeezed, but it won't necessarily bring it to the point where it crashes.

References

https://en.wikipedia.org/wiki/Subprime_mortgage_crisis#
https://www.investopedia.com/articles/economics/09/subprime-market-2008.asp
https://www.forbes.com/advisor/mortgages/real-estate/will-housing-market-crash/
https://www.noradarealestate.com/blog/housing-prices/
https://investorplace.com/2022/06/what-would-cause-the-housing-market-to-crash-in-2022/
https://www.noradarealestate.com/blog/housing-market-predictions/

Housing Market Crash 2024: Wells Fargo’s Recession Warning

November 16, 2023 by Marco Santarelli

The Looming Threat of a Housing Market Crash

Fears of a housing market crash in 2024 are looming large, casting a shadow of uncertainty as mortgage interest rates hover near 8%. Wells Fargo, a prominent financial institution, has issued a stark warning, drawing parallels with the economic challenges of the 1980s. As concerns grow, investors are advised to closely monitor the housing market's unpredictable fluctuations.

A Blast from the Past: The 1980s and High-Interest Rates

Those who lived through the early 1980s recall the devastating impact of soaring interest rates on the U.S. economy and the real estate market. With a series of interest rate hikes in the early part of this year, questions arise: Is a housing market crash and a recession on the horizon? Experts suggest that it's more than just a possibility.

The Wake-Up Call to the Federal Reserve

In a significant development, three influential organizations, the Mortgage Bankers Association (MBA), National Association of Realtors (NAR), and National Association of Home Builders (NAHB), jointly penned a letter to Federal Reserve Chairman Jerome Powell. Their message highlighted a concerning fact – mortgage interest rates have surged to a 23-year high, dragging down application activity to levels last witnessed in 1996.

The Federal Reserve's aggressive stance on interest rate hikes has raised concerns that a housing market recession akin to the 1980s could be in the making. The central bank has indicated that it will maintain elevated borrowing costs well into 2024 to combat inflation. However, this move is expected to lead to declines in construction and overall housing market activity.

Wells Fargo's economists, Charlie Dougherty and Patrick Barley, expressed their apprehensions in a recent research note. They noted that, “After generally improving in the first half of 2023, the residential sector now appears to be contracting alongside the recent move higher in mortgage rates.”

Impact on Demand and Supply

The rise in mortgage rates could gradually ease once the Federal Reserve begins to ease its monetary policy. However, financing costs are likely to remain elevated compared to recent norms. This “higher for longer” interest rate environment is expected to not only affect demand but also constrain supply. New construction may dwindle, and prospective sellers may be discouraged from listing their homes for sale due to rising mortgage rates.

The average 30-year fixed-rate mortgage has surged from under 4% to nearly 8% since the Federal Reserve initiated its tightening measures in March 2022, according to data from Freddie Mac.

Higher borrowing costs have led to a decline in the construction of new houses in the United States. This has exacerbated the shortage of available homes, incentivizing existing homeowners to hold onto their properties to maintain historically low-interest rates they secured earlier. Data from Redfin indicates that only 1% of Americans sold their houses in the first half of 2023.

Comparing Past and Present: The 1980s and Now

In the 1980s, the Federal Reserve waged a fierce battle against inflation, driving 30-year mortgage rates as high as 19%. The desperate pleas from homebuilders, symbolized by a memorable letter to the Federal Reserve Chair Paul Volcker, highlighted the dire consequences of high-interest rates on the housing sector.

Wells Fargo's economists have drawn a striking parallel between that era and the recent actions of housing industry participants. In a letter to the Fed's board of governors, the National Association of Realtors, Mortgage Bankers Association, and National Association of Homebuilders implored Chair Jerome Powell to reconsider the central bank's ongoing rate-hiking campaign.

Dougherty and Barley noted, “The plea for assistance from housing industry participants, both in the early 1980s and more recently, illustrates the severe impact higher interest rates can have on the residential sector.

Signs of a Housing Market Relapse

As the Federal Reserve maintains its restrictive policy stance and mortgage rates breach the 7% mark, various facets of housing activity have exhibited signs of regression. Home sales, mortgage applications, and indices tracking homebuilder confidence have all experienced declines in recent months.

What Actions Should Home Buyers Take Now?

In these uncertain times, prospective home buyers must be vigilant and well-informed. It's crucial to consider the following steps:

1. Monitor Mortgage Rates Closely

Stay updated on mortgage interest rates as they play a pivotal role in determining the affordability of your potential home purchase.

2. Consult Financial Advisors

Seek advice from financial experts who can guide you through the intricacies of the current market conditions.

3. Be Prepared for Market Fluctuations

Prepare yourself for possible fluctuations in the housing market and have a well-thought-out strategy for different scenarios.

The warning from Wells Fargo regarding a potential 1980s-style housing market crash is a stark reminder of the vulnerability of the real estate sector to rising interest rates. Home buyers and investors should remain cautious and stay informed as they navigate through these challenging times.

Where Are Housing Prices Falling 2022?

November 11, 2022 by Marco Santarelli

Fortune reached out Moody's Analytics to get access to its latest proprietary housing analysis. The financial intelligence business predicted home price changes in 414 markets between 2022 and 2024. Moody's Analytics expects that 210 of the nation's 414 major housing markets will see home prices falling in the next two years and 204 will see home prices rise. 183 of the 413 biggest U.S. home markets are “overvalued” by more than 25%. Boise, Idaho, is 71.7% overvalued, and Flagstaff, Arizona, is 60.6%.

Redfin revealed its “risk score” on Friday, which identifies the home markets that are most vulnerable to a “housing slump.” The greater a market's “risk score,” the more likely it is that house prices will fall year over year. Redfin examined 98 regional housing markets and evaluated indicators such as home-price volatility, average debt-to-income ratio, and home-price growth. Among the 98 markets measured by Redfin, Riverside had the highest likelihood of seeing a “housing downturn.”

It was followed by Boise, Cape Coral, North Port, Las Vegas, Sacramento, Bakersfield, Phoenix, Tampa, and Tucson. Popular migration destinations where home prices soared during the pandemic, such as Boise, Phoenix, and Tampa, are most likely to see the effects of a housing downturn amplified and year-over-year home prices decline if the economy enters a recession, a scenario that some economists believe is likely as inflation persists and stock markets stumble.

<<<Also Read: Will the Housing Market Crash? >>>

Homeowners in those markets who are considering selling should market their properties as soon as possible to avoid price drops. Rust Belt cities like Cleveland and Buffalo, which are still inexpensive, are the most resilient to a housing market crash. The U.S. housing market slowed significantly in the spring due to rising mortgage rates. Redfin studied which metros are most vulnerable to home-price reductions if the country enters a recession and which are most immune to an economic slump.

Recession-proof northern metros, including Cleveland and Buffalo, NY, are relatively inexpensive. Prospective homebuyers in these places can proceed with confidence. Redfin's examination of 98 U.S. metros with relevant data utilizes home-price volatility, average debt-to-income ratio, and home-price growth. Each metro is given an overall risk score relative to the others. 100 indicates the highest possibility of a housing market slump, including home-price decreases, while 0 indicates the lowest.

“Recession fears are escalating, mostly because the Fed has signaled it will continue to raise interest rates to tame inflation and cool consumer demand. Higher interest rates led to surging mortgage rates, which have already cooled down the housing market,” said Redfin Senior Economist Sheharyar Bokhari. “If the U.S. does enter a recession, we’re unlikely to see a housing-market crash like in the Great Recession because the factors affecting the economy are different: Most homeowners have a fair amount of home equity and not much debt and unemployment is low.”

Housing Markets at Risk of Falling Home Prices

If the U.S. enters a recession, Riverside's home market will chill the most. It has the highest danger score of any major U.S. city, 84. It's more likely than other metros to see prices drop year over year during a recession or economic slowdown, according to housing and economic statistics. Riverside, which includes San Bernardino, Ontario, and Palm Springs, has variable house values and was a favorite location during the epidemic for both permanent movers and second-home buyers.

Riverside is followed by Boise (76.9), Cape Coral, FL (76.7), North Port, FL (75), and Las Vegas (74.2).

Sacramento, CA (73.1), Bakersfield, CA (72.2), Phoenix (72), Tampa, FL (70.7), and Tucson, AZ (70.1) round out the top 10.

Many of these housing markets, like Riverside, are popular migration destinations or have quickly growing property prices, both of which increase their likelihood of a housing slump. Boise, Cape Coral, North Port, Las Vegas, Sacramento, and Phoenix were among the 20 fastest-cooling areas in May when mortgage rates reached 5.5%. As the economy continues to decline, prices may fall in many of these metros. Six of the 10 areas most at risk of downturns are among the most popular destinations for Redfin.com users moving from one metro to another.

Maricopa County (Phoenix) and Riverside County gained more residents from other parts of the U.S. than anywhere else in 2021, according to the U.S. Census. The most vulnerable metros have likewise seen an outsized price rise. North Port has the nation's fastest-growing house values, up 30.5 percent year over year in May, followed by Tampa (28.1 percent) and Las Vegas (26.8 percent ). Overall, nine of the ten most vulnerable locations had faster-growing house values than the national median (the exception is Sacramento, however, home prices there rose more than 40% throughout the pandemic, reaching $610,000 in May 2022).

Several of those metros went from inexpensive to unaffordable during the epidemic, owing in part to the migration of individuals from other locations. Among them is Boise, where the typical home price increased from $330,000 to $550,000 between May 2020 and May 2022, and Phoenix, where it increased from $300,000 to $485,000.

“Boise’s market is already turning around, as a lot of the people who moved to Idaho during the pandemic are either moving back to their hometowns or cashing in and moving to more affordable places. The housing market was hot during the pandemic, largely because of out-of-town buyers,” said Boise Redfin agent Shauna Pendleton.

Three at-risk metros are in California and three in Florida. San Jose, Oakland, and San Francisco experienced relatively moderate price increases throughout the epidemic, its people tend to have high salaries and considerable home equity, and their housing markets started falling fast in the first half of 2022, mainly owing to collapsing tech stocks. Not all homes in these metros will lose value. Large single-family houses in spread-out areas are recession-proof.

Housing Markets in Which Prices Are Unlikely to Fall

Relatively affordable Rust Belt metros are most resilient in the face of a recession. In case of a recession, Akron, Ohio has the lowest risk of experiencing a housing decline. It has the lowest total risk score of any major US city at 29.6. Low home-price volatility, a low debt-to-income ratio, a small number of second houses, and the fact that properties in Akron are unlikely to be flipped are some of the characteristics that make the city relatively stable.

With an overall risk score of 30.4, Akron is followed by Philadelphia, Montgomery County, PA (31.4), El Paso, TX (32.2), and Cleveland (32.4). The top ten include Cincinnati (32.6), Boston (32.6), Buffalo, NY (33.1), Kansas City, MO (33.4), and Rochester, NY (34.4). Almost all of those metros are inexpensive and have relatively slow-increasing prices, both of which would benefit their housing markets in the event of a recession.

Almost all of the most resilient metros are located in the northern United States, either in the Rust Belt or on the East Coast. Three of them are in Ohio, two in New York, and two in Pennsylvania. In nine of the ten most resilient metros, prices climbed at a slower rate than the national average (El Paso is the exception).

Seven of the 10 metros least in danger of a housing downturn had a median sale price below $300,000 in May, and nine of them were below the $431,000 national median. Affordability benefits property markets in a recession because more people can buy houses, and such locations may attract out-of-town buyers. Boston is pricey, although property prices climbed modestly throughout the epidemic. It's busy and lost residents as remote work became prevalent.

U.S. Metros Most and Least Susceptible to a Housing Downturn in the Next Recession

Ranked by highest to the lowest chance of a housing downturn. The ranking combines 10 indicators to come up with an overall risk score for each metro, relative to the other metros in this analysis. The highest possible score is 100 and the lowest possible score is 0. The indicators are as follows: home price volatility, average debt-to-income ratio, average home-loan-to-value ratio, labor market shock, percent of homes flipped, how much the housing market is “cooling” compared with other metros, the year-over-year change in domestic migration, the share of homes in the metro that are second homes, year-over-year price growth and elasticity of supply. Each factor is weighted equally.

U.S. Metro Area	Overall Score	Average Home-Loan-to-Value Ratio, 2021	Percent of Homes Flipped in 2021	Rank: How Quickly Housing Market Cooled in First Half of 2022	Net Domestic Migration in 2021, YoY	Share of Second Homes, 2021	Price Growth in 2021, YoY
Riverside, CA	84	83%	4.50%	15	19,204	7.70%	21.00%
Boise, ID	76.9			6	6,782	6.00%	30.90%
Cape Coral, FL	76.7	81%	2.90%	11	7,345	23.40%	23.60%
North Port, FL	75	79%	4.40%	18	8,283	20.20%	23.30%
Las Vegas, NV	74.2	84%	8.30%	12	-15,143	7.60%	18.60%
Sacramento, CA	73.1	81%	5.40%	2	4,157	4.30%	19.30%
Bakersfield, CA	72.2	87%	3.80%	21	6,111	2.50%	17.30%
Phoenix, AZ	72	82%	10.30%	17	-15,530	7.20%	25.40%
Tampa, FL	70.7	85%	7.40%	22	524	8.10%	19.60%
Tucson, AZ	70.1	84%	7.70%	54	-2,677	7.10%	21.50%
San Diego, CA	69.8	81%	5.30%	8	-8,189	3.70%	17.50%
Jacksonville, FL	69.3	85%	7.20%	36	4,136	6.20%	16.60%
Stockton, CA	68.2	84%	4.70%	5	3,578	1.00%	19.30%
Knoxville, TN	67	86%	4.60%	13	4,527	5.20%	18.30%
Orlando, FL	63.8	85%	6.40%	31	-6,536	8.70%	16.70%
Charleston, SC	63.4	85%	3.80%	67	-2,921	7.60%	15.40%
West Palm Beach, FL	63.3	80%	3.10%	30	972	12.00%	17.40%
Fresno, CA	60.6	85%	4.70%	37	2,719	2.90%	17.90%
Raleigh, NC	60.4	83%	8.90%	42	3,430	2.60%	17.50%
Oxnard, CA	59.8	79%	2.50%	28	323	3.30%	16.70%
Salt Lake City, UT	57.7				-3,020	2.00%	22.80%
Columbia, SC	56.9	90%	4.40%		2,296	3.20%
Providence, RI	56.6	85%	2.70%	44	3,664	3.90%	15.40%
Atlanta, GA	56.4	86%	9.90%	47	-4,229	2.20%	19.20%
Miami, FL	56.3	82%	2.90%	53	-5,120	5.90%	18.60%
Charlotte, NC	56.1	85%	10.10%		-6,444	2.70%	16.50%
Virginia Beach, VA	55.8	92%	3.20%	80	864	3.40%	8.30%
Tacoma, WA	55.5			9	-3,571	1.70%	19.80%
Detroit, MI	54.8	87%	5.20%	70	-2,062	1.00%	15.40%
Los Angeles, CA	54.8	79%	4.10%	46	-69,329	1.90%	17.30%
Austin, TX	54.6			16	-8,609	3.90%	31.60%
Portland, OR	54.3	82%	3.70%	14	-17,716	2.30%	15.40%
Anaheim, CA	53.9	76%	4.50%	20	-6,644	3.80%	16.00%
Denver, CO	53.8	82%	6.90%	7	-18,063	2.40%	16.70%
Colorado Springs, CO	53.7	87%	5.00%		693	2.50%
Baton Rouge, LA	52.4	89%	3.00%		2,287	2.40%	9.80%
Greenville, SC	52.1	85%	3.50%	32	1,771	4.70%	14.00%
Winston-Salem, NC	51.9	87%	5.10%			2.70%	13.70%
Grand Rapids, MI	51.7	86%	3.60%	29	1,028	2.40%	15.20%
Greensboro, NC	51.7	87%	6.70%	38	-181	2.10%	11.80%
Warren, MI	50.5	86%	2.90%	35	6,180	1.60%	11.40%
Tulsa, OK	50.1	88%	3.40%	45	2,325	2.10%	12.50%
Fort Lauderdale, FL	49.9	82%	3.00%	72	-5,121	7.50%	13.30%
Fort Worth, TX	49.6			50	1,978	1.70%	18.30%
Nashville, TN	49.3	84%	8.30%	48	-6,093	3.40%	17.00%
Allentown, PA	48.6	87%	2.20%	62	3,722	3.40%	14.20%
Camden, NJ	47.9	88%	3.00%	75	4,300	0.50%	17.90%
Houston, TX	47.7			24	-334	2.90%	15.50%
Seattle, WA	47.6	79%	1.90%	4	-37,365	1.80%	17.20%
Nassau County, NY	47.4	80%	3.60%	58	12,296	4.70%	15.20%
Albuquerque, NM	46.8				-1,714	2.80%
New Orleans, LA	46.6	88%	2.90%	23	-3,930	3.40%	10.70%
San Antonio, TX	46.6			40	-138	2.90%	15.10%
San Jose, CA	46.4	74%	2.50%	1	-22,661	0.80%	13.60%
San Francisco, CA	46.3	72%	1.90%	10	-55,918	2.40%	4.80%
Oakland, CA	45.8	78%	2.60%	3	-23,280	1.00%	16.30%
Dallas, TX	45.4			40	-5,685	1.70%	17.90%
Richmond, VA	45.4	87%	3.70%	59	1,995	1.40%	12.30%
Oklahoma City, OK	45.3	88%	5.10%	52	476	1.70%	10.60%
Washington, D.C.	44.2	87%	2.50%	28	-35,800	1.50%	10.10%
New Haven, CT	44.1	87%	2.00%	82	4,492	1.90%	15.80%
Birmingham, AL	43.4	88%	5.90%	68	95	1.40%	8.40%
Little Rock, AR	43.1	89%	4.90%	43	472	1.80%	10.70%
Frederick, MD	42.9	84%	2.00%	25	-58	0.90%	11.70%
Memphis, TN	42.7	87%	7.50%	33	-535	1.20%	13.30%
Honolulu, HI	42.6	79%	0.50%	19		6.20%	7.80%
St. Louis, MO	42.2	86%	3.40%		-2,214	1.30%	10.10%
Baltimore, MD	41.9	86%	2.60%	74	6,085	1.40%	8.50%
Bridgeport, CT	41.7	81%	1.10%	88	8,871	2.00%	11.60%
Worcester, MA	40.8	86%	1.80%	57	3,354	1.20%	16.10%
Indianapolis, IN	39.9			41	902	1.40%	13.50%
Newark, NJ	39.3	84%	1.90%	73	7,348	2.80%	13.20%
Wichita, KS	39.3				-1,813	1.10%	12.50%
Lake County, IL	38.6	85%	1.80%	87	2,746	1.70%	14.40%
Louisville, KY	38.6	87%	4.80%	34	-378	1.20%	9.70%
Wilmington, DE	37.8	88%	2.80%	64	738	1.80%	11.30%
Hartford, CT	36.8	86%	1.70%	80	7,182	1.80%	12.00%
Minneapolis, MN	36.8	85%	3.70%	50	-10,673	1.30%	11.10%
Gary, IN	36.7				939	1.20%	9.70%
Pittsburgh, PA	36.4	87%	1.60%	76	-337	1.50%	12.70%
Elgin, IL	35.8	84%	1.10%	60	3,590	0.60%	11.50%
New York, NY	35.4	78%	1.70%	48	-2,01,570	2.80%	12.30%
Syracuse, NY	35.2	86%	2.20%		1,510	3.30%	11.00%
Milwaukee, WI	35.1	86%	3.30%	79	-2,993	1.40%	7.20%
Omaha, NE	35.1	87%	4.90%	56	-237	1.30%	9.70%
Albany, NY	34.5	87%	2.00%	90	3,521	2.80%	13.70%
Chicago, IL	34.4	86%	1.80%	70	-32,998	1.30%	11.70%
Columbus, OH	34.2	85%	3.40%	61	2,507	1.40%	13.50%
Rochester, NY	34	85%	2.00%	86	1,330	3.20%	12.60%
Kansas City, MO	33.4				-1,491	1.30%	10.90%
Buffalo, NY	33.1	86%	2.60%	78	1,877	1.40%	17.00%
Boston, MA	32.6	79%	1.20%	63	-23,964	2.80%	12.20%
Cincinnati, OH	32.6	87%	3.90%	84	-360	1.30%	13.90%
Cleveland, OH	32.4	86%	2.50%	71	225	1.20%	9.50%
El Paso, TX	32.2			89	-24	1.80%	13.90%
Montgomery County, PA	31.4	83%	1.80%	66	6,685	0.80%	11.00%
Philadelphia, PA	30.4	86%	2.00%	64	-15,721	1.40%	10.10%
Akron, OH	29.6	87%	2.70%	83	2,029	1.20%	7.90%

Source: https://www.redfin.com/news/metros-recession-risk-housing-downturn-2022/

2009 Recession Ends – The Road to Real Estate Recovery

August 7, 2009 by Marco Santarelli

All economists and our financial markets are betting on this quarter to produce positive GDP. Positive GDP marks the ending of the recession. Unfortunately with low wages and high unemployment the consumer will feel less positive over the next year. Still we are marking an end to the worst recession since the Great Depression and everyone should be pleased with this.

Road to REAL ESTATE RECOVERY

Now let's talk about real estate and recovery; The regional markets that had received the highest historical appreciation rates during 2003 to 2006 also had some of the largest price adjustments over the past 36 months. States that had these incredible high real estate returns, like California and Florida, have also seen the highest incidents of foreclosures. Logic would dictate that these markets will bounce back the fastest, but unfortunately they too will recover slowly as will the rest of the nation. An economic recession takes time to unwind and buyer exuberance usually only occurs once the entire nation is certain that the real estate market can only have one trend, up.

The psychology of man dictates that a deep recession brings about caution for some time to come (probably a few years). The States that had some of the highest swings will once again have the highest appreciation. Still it is best not to hold your breath for this in areas like California and Florida until old wounds heal (likely a few more years). In the meantime, recovery is with us. Recovery means price declines stop and appreciation kicks in. We are already seeing this in the hardest hit areas with homes priced at or around mean home pricing.

The June 2009 numbers just came out for pending home sales. We had the FIFTH STRAIGHT MONTH of pending home sales increases (up 3.6% month to month) and over a 6% increase compared to June 2008. Real estate, like any form of investment, has cyclical patterns that are dependent upon supply and demand. Optimism will once again kick in and sellers, buyers, developers all become happy over time.

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