The housing market's fragile place
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Illustration: Brendan Lynch/Axios
We need to talk about the housing market: It has been in a low-boil recession for four years now, with anemic sales and the appearance of high prices, somehow without tanking the overall economy.
Why it matters: Homeownership is the bedrock of the economy — it's how most Americans build wealth — and changes in the residential real estate market ripple out into things like consumer spending, the job market and inflation.
Catch up quick: Housing has been in the dumps ever since mortgage rates started climbing in 2022, but if you already have a home, you probably didn't think about it that much.
Zoom in: Home sales are at levels last seen when the country was crawling out of a housing crisis more than a decade ago.
Friction point: Many folks don't want to give up their low mortgage rates and buy something else.
- Others are discouraged by the prospect of high mortgage rates and house prices that, in many markets, are still hovering at record highs.
The intrigue: Those high prices are real, but are also a bit of an illusion, investor Bob Elliott argues in a post this week.
- Homeowners aren't forced to find out what their home is really worth until they put it up for sale. "Most owners are locked in with a perception of high value, without actually being forced to turn it into liquidity," he wrote.
- That perception is making a lot of homeowners feel relatively well-off — and helping drive consumer spending, which powers the economy.
Between the lines: "Without the perception of high prices there is a significant threat that the key linchpin of the whole economy might start to unravel," Elliott wrote.
What to watch: At some point, folks do need to sell: Life happens; you need to move; you divorce, etc. Could that point be now?
- We're about five years out from the COVID home price spike — "and five years is about the time when people start thinking about moving again," says Daryl Fairweather, chief economist at real estate site Redfin. "Especially if they bought a home that they thought was going to be a starter."
- Some markets are already seeing falling home prices, she says, pointing to Seattle and some parts of Texas and Florida.
- "There's only so long that sellers can hold off."
By the numbers: Those who do put their houses on the market don't always like what they see. Nearly 6% of home listings were taken off the market by sellers in July — meaning that they removed the listing without landing a sale or going under contract, per data from Redfin.
- That number's been trending higher for the past year, although it fell a bit last month.
Reality check: For all its woes, the housing market is still relatively strong, Fairweather points out.
- Homeowners are sitting on real equity that they could tap in moments of distress.
- And if a true economic recession were to hit, mortgage rates would likely fall — generating some real sales action.
The bottom line: For now, the housing market recession isn't really dragging down the overall economy. If anything, people are still spending money because their homes make them feel rich. It's just sort of a weird situation.
