Recession Or Not: 'The Road Ahead For Housing Will Be The Same Or Better'

Palo Alto Online September 17, 2023

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Recession Or Not: 'The Road Ahead For Housing Will Be The Same Or Better'

Economists are weighing in on the direction the economy will take in the next few months and how it will impact the housing market. While some portend doom and gloom, not all economists see a housing crash in the works. In fact, whether or not the Federal Reserve decides to raise interest rates once again, these economists say, based on a variety of factors, the housing market will still benefit.

Elliot Eisenberg, a partner economist of MLSListings, the multiple listing service that primarily serves San Mateo, Santa Clara, San Benito, Santa Cruz, and Monterey counties, shared his views with the Silicon Valley Association of Realtors last week. Despite higher interest rates and the low housing supply nationwide, Eisenberg's outlook on the future of the housing market remains positive. The road ahead for housing will be "the same or better," he said.

Eisenberg, who is the chief economist for GraphsandLaughs, LLC, a Miami-based economic consulting firm that serves clients across the nation, said the housing landscape has not changed much in the last few months. Many homeowners have a wealth of equity in their homes, foreclosures have been minuscule, and the many homeowners who took advantage of the historically low-interest rates still appear reluctant to sell their homes and give up their locked-in low rates, even if they want to move up to a larger or a newer home.

The market is seeing fewer home sales, but it is not at a standstill, Eisenberg said.

Despite mortgage interest rates hovering above 7%, people are still buying homes, whether due to a death, divorce, a job change, or other changes in life circumstances, Eisenberg said.

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With demand greater than supply, home prices are back on the rise. Jessica Lautz, deputy chief economist for the Association of Realtors, noted in her blog earlier this month that "35% of homes are going for more than the asking price due to low inventory, with the typical seller receiving three offers."

The economy and the housing market are not in sync, Eisenberg said. Although inflation has steadily improved from its peak of 9.1% in June 2022 to 3.2% this past July, it is still far from the Fed target rate of 2%. It's possible that the Fed could go for at least one more interest rate hike later this year, he added.

"The Fed very clearly wants a 2% inflation rate," Eisenberg said.

Elliot Eisenberg. Photo courtesy Elliot Eisenberg.

More interest hikes will be risky, Eisenberg warned. He indicated credit card balances are rising, and the pandemic stimulus money is expected to run out soon. As of Wednesday, Sept. 13, about 146,000 auto workers were poised to go on strike this week pending labor negotiations with automakers. Then there's the threat of a government shutdown if Congress doesn't reach a spending deal by the end of September, which could dent consumer confidence.

Should a recession occur, the Fed will lower interest rates. The rates could be low enough that more homeowners may find it beneficial to sell, and those with large equity in their homes may decide it's time to move up.

It's also possible that the Fed may want to keep rates as is for the meantime. Should inflation hit its target level of 2%, Eisenberg explained the Fed can't risk lowering rates immediately for fear that inflation could return. They could eventually lower rates to a moderate level, which may open the market to more sellers and buyers.

Whether the economy has a soft landing and avoids a recession, or experiences a hard landing with a rapid economic downturn, the housing market will see more activity, Eisenberg said.

Lawrence Yun, chief economist for the National Association of Realtors, shared these possible economic scenarios with Newsweek on Monday, Sept. 11. If there is "some calming of the economy and inflation, Yun said this would lead to modestly lower mortgage rates and more buyers entering the market. If there is an economic recession with more job losses, this may force people to sell their homes.

A decline in consumer confidence could lead to much lower interest rates, which could potentially prompt the large percentage of people with stable jobs to take advantage of the lower rates, he said.

"This scenario may cause home prices to rise faster, especially if some wealthy people decide to reallocate investments from the stock market to real estate," Yun told Newsweek.

Either way, as Eisenberg noted, housing benefits.

"Bide your time. Wait and be patient. Don't overreact," Eisenberg said.

Silicon Valley Association of Realtors (SILVAR) is a professional trade organization representing 5,000 Realtors and affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.


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