“Housing production has indeed held up. However, the pandemic-related fiscal transfers and built-up household savings have supported consumer spending longer than we had expected, providing unforeseen support to the macroeconomy. Our current prediction for a mild downturn in the first half of 2024 is predicated on the belief that consumers will begin pausing their spending, in part due to the exhaustion of those funds and having to realign to a more sustainable relationship between spending and incomes.”
Duncan noted that while the public remained upbeat about individual job prospects, the broader economic horizon appeared less rosy. This perspective, paired with the double whammy of surging mortgage rates and home prices, is casting shadows on housing affordability.
“According to our latest National Housing Survey, households remain confident in their own employment, even though they don’t feel great about the overall economy, and the vast majority don’t believe it’s a good time to buy a home, as mortgage rates and home prices continue to constrain affordability,” he said. “This is evidenced by recession-level home sales volumes resulting from the very low levels of existing homes for sale and the significant affordability challenges. The elevated share of new homes relative to total home sales and a similarly elevated share of first-time homebuyers purchasing new homes are additional evidence of the ongoing housing supply problem.”
The ESR group expects the subdued housing market activity to continue into 2024, especially as the “Federal Reserve continues to hold the line on interest rates against inflation,” Duncan said.
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