US Housing Market Has Bottomed Out: "Signal of New Home Rebound"

Housing Market Index Hits Highest Level in One Year

In the U.S. housing market, buyer sentiment has revived mainly around new homes, raising expectations for a market rebound. However, there are observations that this could be a temporary rebound depending on the possibility of additional interest rate hikes.

The National Association of Home Builders (NAHB) Housing Market Index (HMI), a leading and sentiment indicator of the U.S. housing market, recorded 56 in July. This is a slight increase from the previous month (55) and the highest since June last year (55). It has nearly doubled compared to the low point in December last year (31). The NAHB Housing Market Index surveys home builders monthly about their business outlook and is considered a leading indicator of future home sales.

As this index has continued to rise since January this year, optimistic forecasts are emerging regarding the U.S. housing market. Lawrence Yun, chief economist of the National Association of Realtors (NAR), said, "The U.S. housing recession is over," adding, "The question now is when an ideal recovery will appear where supply of new and existing homes is sufficient, leading to increased transaction volume without rising home prices."

The new home indicators are showing signals of a rebound. The U.S. Department of Commerce reported that housing starts last month reached a seasonally adjusted annual rate of 1.44 million units. This brought the average housing starts in the second quarter of this year to 1.45 million units, up from 1.39 million units in the previous quarter. This quarterly increase in housing starts is the first since early last year. However, due to the sharp rise in mortgage rates, demand for selling existing homes and buying new ones has not materialized, so the shortage of existing home inventory remains.

[Image source=Reuters Yonhap News]

Foreign media have noted that this housing market recovery occurred despite persistently high interest rates. The Wall Street Journal (WSJ) pointed out, "It is somewhat surprising that the rebound occurred despite mortgage rates in the 7% range, which are double those from 18 months ago." According to the government-sponsored mortgage company Freddie Mac, the average 30-year fixed mortgage rate was 6.96% last week, higher than both the same period last year (5.51%) and the previous week (6.81%). WSJ observed, "The housing market recovery is contributing to a slight increase in U.S. gross domestic product (GDP) growth, and this trend is expected to continue for the next few quarters."

However, there are also forecasts that this rebound may be a temporary recovery. WSJ predicted that if the Federal Reserve (Fed), the U.S. central bank, continues its interest rate hike policy through next year, the housing market could enter a recession again. Until a clear downward trend in rates begins, the housing market is expected to experience slight fluctuations.

WSJ noted, "The sluggish housing construction activity during the pandemic led to a shortage of housing supply," adding, "A strong labor market may limit builders' activities, acting as a factor suppressing the housing market." According to NAHB, the number of homes listed on the market was 1.08 million at the end of last month, a 44% decrease compared to 1.92 million at the end of June 2019, before the pandemic.

This content was produced with the assistance of AI translation services.