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3 signs the housing market's affordability recession is finally ending

Filip De Mott   

3 signs the housing market's affordability recession is finally ending
  • The housing market appears to be entering a recovery period, Charles Schwab said in a May report.
  • It said supply, price growth, and home sales all looked to be improving from past conditions.

The housing market is on a slow climb out of its affordability crisis, though time is still needed to properly relieve consumer pain, Charles Schwab said in a note from May.

"As housing was the first sector to kick off the rolling recessions we've pointed out for more than two years, it now looks like it's participating in the start of rolling recoveries," the bank said. "That comes with an important distinction, though: A recovery is not synonymous with a booming expansion."

Instead, it's more that runaway price and sale trends are easing from extremes, while supply-side conditions are showing signs of meaningful improvement.

First, the steep acceleration in home-price growth looks to be over, Schwab said. That's in reference to the marked increases seen between 2022 and 2023 as pandemic buying fever turbocharged pricing. Just four years into this decade, prices have rocketed 47% higher.

While growth has normalized, prices remain elevated, with median prices of existing and new homes both near record highs. Prices for the two property types average $412,000 and $433,000, respectively.

But according to a new report from Redfin, sale-price growth could keep softening in the coming months. That's amid a rebound of sellers who are slashing their asking prices.

Second, sales are steadily picking up, though meaningful bounce back hasn't happened yet, Schwab said.

In the past few years, home sales plummeted, falling by a maximum drop of 41%. That's been outdone by new-home sales, which fell almost 50%.

Though still below their cycle peaks, both are up 9% and 22% from their recent troughs.

Third, new inventory supply has soared as home builders hurry to respond to unmet demand. Even before the pandemic, a shortage of housing had been a point of pressure for consumers, made worse by homeowners who have been kept from moving because of today's high mortgage rates.

"For any recent or aspiring homeowner, it's no surprise that affordability is significantly constrained in this cycle," Schwab said. "This has prevented individuals and families from purchasing a home, forced them into intense bidding wars, or caused them to make more painful financial tradeoffs in order to purchase a home."

In fact, the Housing Affordability Index fell to its all-time low last year, but Schwab said that it seemed to be pushing back up from the bottom. However, investors should expect this recovery to be sluggish.

Mortgage rates, the bank added, are likely to keep drifting higher as federal interest rates normalize near current levels. Though mortgage highs have been a headwind for consumers, buyers are likely to adjust to this over time.

"That doesn't mean housing can only fully recover if prices and rates come down dramatically, given there are other (perhaps stronger) factors at play, such as supply," Schwab said. "Yet, a stabilization in activity, price growth, and interest rate volatility will likely provide a more stable foundation for the sector."

This story was originally published in May 2024.