**The U.S. Housing Market: A Closer Look at the Recovery**
**Is the U.S. Housing Market Recovering or Just Experiencing a Temporary Bounce?**
A recent report from economic research consultancy firm Pantheon Macroeconomics challenges the idea that the U.S. housing market has bottomed out. While there has been a bounce in the market, the report suggests that this is temporary and not indicative of a true recovery. The report emphasizes the importance of affordability as a key hurdle to a sustained rebound in the housing market. Furthermore, it predicts that there is still more room for national house prices to fall.
**The Affordability Crisis in the Housing Market**
According to Pantheon Macroeconomics, the drop in home prices is yet to come. Last year’s mortgage rate shock and the significant increase in home prices during the pandemic have resulted in a decline in housing affordability unseen since the peak of the 2006 housing bubble. The report argues that until affordability improves, the housing market cannot fully recover. This improvement can be achieved through lower mortgage rates, falling home prices, or both.
**Conflicting Views on National Home Prices**
While Pantheon Macroeconomics predicts further declines in national house prices, other economists at firms like CoreLogic and Zillow believe that national home prices have already bottomed out. They point to the fact that national house prices, along with new home sales, are on the rise. However, Pantheon Macroeconomics remains unconvinced by this evidence. The firm attributes the homebuilder rebound to aggressive builder discounts and a lack of resale inventory, rather than an actual housing market recovery.
**The Direction of the U.S. Housing Market**
Pantheon Macroeconomics does not view the current situation as an early stage of recovery. Instead, the report suggests that the housing market is transitioning from a collapse in demand, sales, and construction to falling prices and decreased housing-related consumption spending. The firm predicts a steep and sustained drop in house prices, although the speed and scale of this adjustment remain uncertain.
**The Importance of Affordability**
The report underscores the significance of affordability in driving a true recovery in the housing market. Mortgage payments for a median-priced existing single-family home now account for about half of average after-tax incomes, up from 30% to 35% before the COVID-19 pandemic. According to Pantheon Macroeconomics, home sales cannot fully recover unless affordability improves. This improvement relies on lower mortgage rates, falling home prices, or a combination of both.
**The National Aggregate Perspective**
It’s important to note that when Pantheon Macroeconomics refers to “U.S. home prices,” they are discussing a national aggregate. This perspective takes into account the overall trends and indicators of the housing market on a larger scale.
**Staying Informed about the Housing Market**
To stay updated on the latest developments in the housing market, you can follow Lambert on Twitter at @NewsLambert or on Threads at newslambert.
By focusing on the challenges of affordability, Pantheon Macroeconomics offers a different perspective on the recovery of the U.S. housing market. The report predicts further declines in national house prices and emphasizes the need for improvement in affordability to drive a sustained rebound. While other economists believe that the market has already bottomed out, the debate continues as to whether the housing market’s recent bounce is simply temporary or a true sign of recovery.