in

Is the housing market heading towards a ‘double-dip recession’?



**Homebuilders See Increased Demand in 2023**

Just days into 2023, homebuilders across the country experienced a noticeable uptick in demand as price-sensitive buyers sought relief from last year’s mortgage rate shock. This surge in demand can be attributed to builders’ significant price adjustments in Western markets, such as Salt Lake City and Boise, and the implementation of aggressive incentives like mortgage rate buydowns.

**Sustained Improvement in New Construction**

At the halfway mark for 2023, the improvement in new construction seems to be sticking, at least for now. According to Ali Wolf, the chief economist at Zonda, the housing recession in the new-home space is objectively over. Home sales, housing starts, and home prices are all on the rise again. In May, new home sales were up 20% compared to the previous year, reaching the highest monthly reading between 2010 and 2019. Additionally, leading indicators like homebuilder confidence are showing an upward trend.

**Potential Challenges for Builders**

While homebuilders have managed to escape the housing market recession, there are still significant challenges they may face going forward. Two primary headwinds for builders are affordability and the impact of economic history.

**Affordability Struggles Persist**

Despite affordability improvements through price cuts and incentives, affordability in the housing market remains strained. The sudden increase in mortgage rates, coupled with historic overheating in home price growth between 2020 and 2022, has put a strain on affordability. If the economy weakens and existing/resale inventory grows, builders could find themselves facing another housing recession.

**The Impact of Economic History**

Another challenge for homebuilders is the impact of economic history, particularly the Federal Reserve’s rate hiking campaign. The current rate hiking campaign is the fastest in over 40 years. Historically, Federal Reserve inflation-fighting campaigns have often concluded with a full-blown U.S. recession. This historical pattern raises concerns about the potential impact on the housing market.

**Uncertainty and Potential Risks**

There are still uncertainties and potential risks that could affect housing demand and potentially lead to another housing recession. Economic concerns such as the Federal Reserve’s restrictive policy, a significant pullback in consumer spending, and the fallout from the commercial real estate sector could all impact the housing market. The durability of the current growth in the new home market will depend on whether demographic-supported demand is enough to withstand these wider issues or if a double-dip recession in housing is on the horizon.

**Conclusion**

While the housing market has shown signs of recovery and growth in 2023, homebuilders must navigate potential challenges in affordability and economic uncertainties. The housing market’s sustained improvement will depend on various factors, including wider economic conditions and the ability of the market to withstand potential risks. Homebuilders must continue to monitor these factors closely to ensure stability and success in the new home market.



Leave a Reply

Your email address will not be published. Required fields are marked *

GIPHY App Key not set. Please check settings

Partech Partners Hosts Skåne Startups Investors Chat & Founders Pitch

Maximize Your Business Growth: Utilize Performance Marketing and Digital Impressions