The US will probably avoid a recession. That might be bad news for homebuyers.

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  • The US economy may avoid a recession after all. That’s not great for sidelined homebuyers.

  • A recession would likely cause interest rates to fall, bringing down mortgage rates and adding housing inventory.

  • High borrowing costs and elevated prices are the new normal for now, one real estate economist said.

The US will probably avoid a recession after all – and that could be bad news for buyers who are being priced out of a frustratingly unaffordable housing market, according to National Association of Realtors chief economist Lawrence Yun.

The real estate economist saw mortgage rates and home prices staying flat—which is to say, elevated—through the rest of 2023, with the the 30-year-fixed mortgage rate easing to just 6%-6.5% by year-end.

It’s not the seismic change some homebuyers are hoping for, with mortgage rates currently hovering near 7% for most of the past year. That’s partly the fault of the strong economy, Yun said, and the US averting a downturn will likely influence interest rates to stay high throughout the economy, meaning mortgage costs won’t budge much from 20-year highs.

Yun pointed to the robust labor market, with the economy adding 209,000 in June, only slightly lower than in previous months. Inflation, meanwhile, has cooled significantly from its 41-year-record last June, with prices accelerating just 3% year-per-year.

“My baseline is we don’t have a recession. We continue to crank out jobs – maybe not as strongly – but still more jobs with each passing month,” Yun told Insider.

But no recession suggests the Fed won’t be compelled rapidly pull back interest rates to avoid exerting too much pressure on the economy. Investors think it’s nearly certain the Fed raises rates once more this month and then see a high likelihood that the central bank holds its benchmark rate steady at 5.25%.5.50% for the rest of 2023.

That could mean a longer waiting game for homebuyers, as the higher fed funds rate influence higher mortgage rates.

High rates have battered housing activity over the past year as buyers get pushed to the sidelines. Meanwhile, the high cost of borrowing has also worsened the inventory shortage, as elevated mortgage rates discourage homeowners from listing their properties for sale as many locked in lower borrowing costs in the last decade before Fed’s tightening campaign.

That has the effect of propping up home prices even as demand stays low because of rising mortgage rates.

Experts have said affordability is unlikely to improve until mortgage rates pull back more significantly, which could encourage more buyers to enter the market.

Yun doesn’t necessarily think that’s the case. Though home prices will stay elevated as mortgage rates see little change, household incomes rise by an average 4%-5% each year, Yun said, meaning a stagnant housing market will will give buyers time to catch up with the high costs of housing.

Still, it could take years for buyers to close the affordability gap, as higher-for-longer mortgage rates are the “new normal”, Yun warned.

“If people are able to get 6% [mortgage rates], they consider themselves as lucky. I think the new condition will be something around 6%,” he added, in line with what other real estate experts see through the rest of the year.

Read the original article on Business Insider

Source: https://finance.yahoo.com/news/us-probably-avoid-recession-might-201500402.html