The U.S. economy may enter recession in 2023, which will help lower mortgage rates, predicts the Mortgage Bankers Association (MBA).
“We’re expecting a recession next year. The positive thing for the industry may be that it will probably help lower rates a little bit,” MBA Senior Vice President and Chief Economist Mike Fratantoni said during the association’s annual conference in Nashville, Tenn.
He said the MBA’s forecast calls for a recession in the first half of 2023, and the association also expects the unemployment rate to rise from 3.5 percent to 5.5 percent by the end of next year.
Fratantoni said he believes companies will no longer try to fill open positions and the pace of hiring will eventually slow.
The economy will lose an average of 25,000 jobs a month during 2023, Fratantoni said. The employment rate by the end of the year will be 5.5 percent.
Meanwhile, the MBA predicts that mortgage rates will fall to 5.4 percent by the end of next year, down from more than 7 percent currently.
“We are of the opinion that there is an upswing now due to financial market disorientation, increased market volatility and the downturn in the global economy that we will face; the possibility of a U.S. recession will begin to put pressure on this rate,” Fratantoni said.
Many potential homebuyers are putting off their plans to buy a home amid too high monthly mortgage payments. The average rate on a 30-year mortgage last week was 6.94%, up from 3.85% for the same period a year earlier.
Deutsche Bank
In the third quarter of 2023, the U.S. stock market will collapse by 25% from local highs. The collapse will occur due to the onset of the U.S. recession, it follows from the forecast of Deutsche Bank, which cites Business Insider.
Deutsche Bank expects that in the first half of 2023, the S & P 500 index will grow by 13.5% of current values and reach 4,500 points. However, already in the third quarter, the index will collapse by more than 25%. By the end of the year, the index could recover to the same 4,500 points.
“We believe the Fed and the ECB are determined to get inflation back to target levels over the next few years,” said Deutsche Bank Chief Economist David Folkerts-Landau. He added that achieving this goal will be impossible without a significant increase in unemployment and the U.S. and European economies sinking into at least a moderate recession.
Decline in home prices in the U.S.
Residential real estate prices in the U.S. will fall by 8 percent next year, according to a report by research firm Capital Economics. But high mortgage rates and a possible recession will continue to negatively affect the affordability of housing for Americans, the report said.
“With housing affordability unlikely to improve anytime soon, many buyers simply won’t be able to afford a home, and the rest simply won’t want to buy one,” the report said.
At the same time, another study by the Federal Reserve Bank of Dallas did not rule out the possibility of a 20% drop in prices immediately in a pessimistic scenario, which could slow the growth of inflation-adjusted consumer spending by 50-70 basis points.
Capital Economics analysts predict that home price growth could then rebound to 2.5% by the end of 2024.
Long-term mortgage rates, they believe, will hold around 7% for most of next year, dropping to 5.75% by the end of the year. A year ago, rates were around 3 percent.
Experts’ calculations show that a median-income family spent 28.5% of its income on mortgage payments to buy a median-priced home in October, compared to just 13.3% in May 2020.
The median home value in the U.S. is now about $425,000, up 13% from a year earlier
Where should Generation Z live? The U.S. real estate market is counterintuitive
The U.S. residential real estate market is experiencing processes that dangerously resemble those that led to its collapse in 2008 and whose consequences were felt around the world. Analysts are still afraid to use the term “collapse”, realizing that one carelessly said word can, in an alarming atmosphere, cause this very process in real life. Nonetheless, everyone knows that there is no smoke without fire, examined where that fire is burning.
The very fact that the number of Internet searches containing the phrase “housing market crash” and the like skyrocketed in August is a harbinger of growing uncertainty in this area in the United States and Canada, whose economies are synchronized as much as possible. According to Ruby Home, the number of such requests is up 177% over the same month a year earlier. In absolute numbers, the number of users concerned about housing is the highest since 2008.
Analysts are unanimous that the rental housing market in the U.S. and Canada in recent years (specifically, from 202 to 2022) has inflated a bubble that is about to burst. When it bursts, sales and rental prices will inevitably fall (analysts say the deadline is around early 2023). However, renters somehow and somewhere else will have to live up to that time of beauty, when they can again afford the luxury of owning your own corner.
Meanwhile, experts are struck by the complete illogic of the current situation, when by all laws of the economy prices should fall, but somehow it does not happen. On the contrary, rental prices in 2022 are the highest since 1986.
Landlords Raise Rates for Z-Youth
The national average monthly rent in August 2022 is $2,000 (it was $1717 in July). For decades, rents have been rising in more or less the same corridor as overall inflation, in the range of 3-4%. But in the first half of this year, rent growth was abnormally high at 17%. And in some U.S. cities and states (New York, Atlanta, Austin, Charlottetown and other cities in the U.S. and Canada) compared to the period of the pandemic coronavirus rents for the same size and quality housing increased by a fantastic 50%. And only the Minneapolis/St. Paul metropolitan area has kept prices up – their growth over the past year was the usual 4.2%.
The fastest growth in prices for bachelors (studios), and it is just explainable: people over the years of the pandemic have become accustomed to life in social isolation. In this segment of the market demand for the past year has jumped by 80%. It is expected that the core of demand in this segment form the so-called Generation Z (American sociologists call those who were born in the early XXI century and have just left their parents). For the period from 2020 to 2022, their number has almost doubled, pulling demand for studio and one-bedroom apartments (in the American version it is analogous to the Russian two-bedroom apartments), which automatically caused the price increase.
The market heats up the fact that since fewer and fewer Americans can afford to buy a house, they are forced to rent. Another factor analysts call the widespread use of remote work: workers need to be isolated from other home space, and the studio for this – the ideal option: an office and housing “in one package. Finally, the demand for rental housing is fueled by the thousands of Latin American migrants that Joe Biden’s administration generously let into the United States this summer.
There is no physical shortage of housing in the U.S.; on the contrary, the number of apartments or houses for sale has been growing rapidly since the pandemic ended: 1.6 million housing units were put on the market last year. That’s measurably more than the 900,000 buyers, that is, Americans or Canadians over the age of 21, who entered the market during the same period. Nevertheless, somehow, 96% of all available housing supply has been removed so far.
Renter Generation
Analysts believe that the reason for the increase in housing prices, while there was enough of it, was that the Americans, corrupted by the “helicopter money” that the government was throwing around during the pandemic, did not bargain much: as the American saying goes, easy come, easy go. The free money quickly ran out, but the so-called anchor effect worked: once prices have settled at a certain level, they very reluctantly go back down even when the factors that led to the initial growth disappear.
According to international housing market expert Irina Radchenko, economic logic failed when faced with the psychology of the Generation Z, which now forms the basis of consumers of rental housing.
Young people who have entered the market have a fundamentally different psychology than their parents and grandparents when it comes to a roof over their heads. They don’t want to take out mortgages, sentencing themselves to 20 years of “maximum security. “Zetters” want to travel, change jobs, and generally lead a lifestyle with the prefix co: coliving, co-working, etc. Whereas previously the owner-occupied housing market absorbed a huge portion of the clientele, now these millions of people have migrated to the rental housing market. The rental market was not ready for this generational shift.
In North America there is now a typical landlord-tenant market: Landlords, knowing that tenants will have nowhere to go, can ask any price, acting like a burglar demanding “trick-or-treating. But since rents are legally fixed for the duration of the lease, landlords take it out on new tenants.