Housing Market Archives

By Dennis Sweeney, Executive Vice President of HBA of Rockford

The United States boasts of its free market economy which encourages and stimulates innovation, competition and market driven efficiencies were supply meets demand. This market driven economy was very successful in the roaring 80’ and 90’s for housing production. The Rockford, IL housing market was an excellent example of this competition as it was one of the most affordable housing markets in the entire nation while producing 1,000’s of homes each year by 100’s of private contractors for first time new home buyers up to executive new home buyers. There are Parade of Homes plan books to prove it.

The growing costs of government regulations and fees has created a dysfunctional housing policy “ax knot” which is going to be very difficult to untie. Sometimes the only way to undo it is with an ax.

Here is the short list of regulation grievances through the years starting with school impact fees, excessive connection fees, land use and zoning requirements, septic system requirements, and environmentally driven federal building code mandates (mandatory EV charging station wiring), are some of the most costly. All of these, combine to push the cost of new housing higher, dampening demand, and then, the lack of new housing supply, pushes the cost of existing housing higher. Winnebago County property owners received their new property value assessments last week. The cost of housing is going up.

As has been pointed out in previous articles the past few weeks, the United States is 6.5 million housing units behind household formations. This lack of housing supply for the housing demand should be met by the housing industry in the market place because there is money to be made. However, it has become apparent that the housing industry is not confident that it can profitably build those needed housing units where they are needed. Uncertainty has a dampening effect on home building.

Which brings me to the article on page 2 that the FHFA is considering rent regulations and controls to keep rents affordable. Given the history of rent control policies at the national and local levels, it’s difficult to understand how they expect this to be the solution for solving the most pressing housing problem – not enough housing units. The uncertainty in the market and the regulatory costs have led us into this policy “ax knot”. Rent controls are not going to encourage the construction of sorely needed housing units that would be impacted by such a policy.

By: Keeping Current Matters

It doesn’t matter if you’re someone who closely follows the economy or not, chances are you’ve heard whispers of an upcoming recession. Economic conditions are determined by a broad range of factors, so rather than explaining them each in depth, let’s lean on the experts and what history tells us to see what could lie ahead. As Greg McBride, Chief Financial Analyst at Bankrate, says:

“Two-in-three economists are forecasting a recession in 2023 . . .”

As talk about a potential recession grows, you may be wondering what a recession could mean for the housing market. Here’s a look at the historical data to show what happened in real estate during previous recessions to help prove why you shouldn’t be afraid of what a recession could mean for the housing market today.

A Recession Doesn’t Mean Falling Home Prices

To show that home prices don’t fall every time there’s a recession, it helps to turn to historical data. As the graph below illustrates, looking at recessions going all the way back to 1980, home prices appreciated in four of the last six of them. So historically, when the economy slows down, it doesn’t mean home values will always fall.

What Past Recessions Tell Us About the Housing Market | Keeping Current Matters

Most people remember the housing crisis in 2008 (the larger of the two red bars in the graph above) and think another recession would be a repeat of what happened to housing then. But today’s housing market isn’t about to crash because the fundamentals of the market are different than they were in 2008. According to experts, home prices will vary by market and may go up or down depending on the local area. But the average of their 2023 forecasts shows prices will net neutral nationwide, not fall drastically like they did in 2008.

A Recession Means Falling Mortgage Rates

Research also helps paint the picture of how a recession could impact the cost of financing a home. As the graph below shows, historically, each time the economy slowed down, mortgage rates decreased.

Fortune explains mortgage rates typically fall during an economic slowdown:

“Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the recession to the trough. And in many cases, they continued to fall after the fact as it takes some time to turn things around even when the recession is technically over.”

In 2023, market experts say mortgage rates will likely stabilize below the peak we saw last year. That’s because mortgage rates tend to respond to inflation. And early signs show inflation is starting to cool. If inflation continues to ease, rates may fall a bit more, but the days of 3% are likely behind us.

The big takeaway is you don’t need to fear the word recession when it comes to housing. In fact, experts say a recession would be mild and housing would play a key role in a quick economic rebound. As the 2022 CEO Outlook from KPMG, says:

“Global CEOs see a ‘mild and short’ recession, yet optimistic about global economy over 3-year horizon . . .

More than 8 out of 10 anticipate a recession over the next 12 months, with more than half expecting it to be mild and short.”

Bottom Line

While history doesn’t always repeat itself, we can learn from the past. According to historical data, in most recessions, home values have appreciated and mortgage rates have declined.

If you’re thinking about buying or selling a home this year, you can make the best decision by working with a trusted real estate professional. That way, you have expert advice on what’s happening in the housing market and what that means for your homeownership goals.