Real estate, after weakening for some months, has shown broad-based strength—offering a good reason to relax recession fears
Residential real estate seems to have regained health of late, and in more ways than one. On the macro side, activity, after months of stagnation and decline, has turned upward again. Alone, this change has lifted the specter of recession. Still more encouraging, lower-priced housing has begun to appreciate much faster than the long-leading expensive side of the market.
Perhaps more important than the turn itself are the two key fundamentals fostering it. Both make it easier for the average American to support a mortgage. First up is the Fed’s decision to cut interest rates. Thought the central bank has focused on the short-term side of financial markets, its move has caused all sorts of mortgage rates to fall.
More encouraging still and clearly reflecting the improved affordability of home purchasing is the reduction in lending risk. According to American Enterprise Institute housing market indicators, mortgage risk expose overall has dropped more than 15% during the last year. Among small bank mortgage lenders, it has dropped some 19%. It has dropped some 20% among non-bank lenders. Among large bank lenders, it has fallen little but for them risk has always been lower than elsewhere.
Unlike the past few years, buyer interest now has turned toward lower-cost housing in less expensive regions. To be sure, rates of price appreciation in every market segment have slowed, but they have done so most markedly for higher priced homes. Back in 2018, prices for the top quartile of homes in the country were rising at a 7% annual rate. So far this year, the pace has remained well below 2% and at last measure came in at 1.75%.
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