There has been a buzz in the media that we are currently in a “housing recession”. Even the National Association of Realtors’ Lawrence Yun used that verbiage a week or so ago. So, are we?
Well, there is a big difference between housing activity and price recession versus an actual housing recession. There is no secret that housing activity has slowed, but the media should be more careful with their wording because home prices are still being supported by low levels of inventory and their demand is still very strong when homes are priced correctly and more realistically.
Inventory has increased slightly from 1.26 million units to 1.31 million, but a smaller increase than expected and possibly starting to peak similar to the seasonal increases we see every year around this time.
There is now a 3.3-month supply of homes when looking at the sales pace, which is tight because 6-months’ worth of supply is considered a more balanced market. But let’s take a closer look at the inventory picture. When looking at active listings there are only about 747,000, which means that 43% of the “inventory” which was recently released by the Existing Home Sales report, is either under contract or not really available. This shows that demand is still very strong. In a more normalized market, only about 25% of “inventory” is usually under contract.
Also, while many outlets are saying homes are sitting longer on the market, the homes that are priced more realistically are selling very quickly. The Existing Home Sales report showed that homes remained on the market on average for just a whopping 14 days!
The Case Shiller home price index, which is seen as the gold standard for home price appreciation, showed that homes increased in price by 19.7% from May 2021 to May 2022. Yes, this annual number dipped a little from around its peak of up 20.6%, but it is still very strong.
We are certainly in a cooling market where home pricing is normalizing, but demand is still very strong and this doesn’t show that we are in an actual “housing recession”.