For over a year now, the housing market has been in flux. Mortgage rate increases, triggered by the US Federal Reserve’s attempts to slow inflation by instituting base rate hikes, have been through the roof. Fears have abounded among real estate professionals that the price of lending remaining consistently high could trigger a market slowdown. Now, new housing forecast data from Frannie Mae shows that may be in the offing in the very near future. Meanwhile, other sources indicate some good news on the horizon instead. Let’s take a closer look at the data.
In Frannie Mae’s most recent housing forecast, the financial giant is clear in what it expects to happen over the next few quarters with the real estate sector. Frannie Mae found that US housing market activity declined for the past year from Q1 2023. This trend is likely to continue for the foreseeable future, with expectations that residential fixed investment will fall 5.9 percent in Q2 2023, 9.1 percent in Q3 2023, and 6.4 percent in Q4 2023. By the first quarter of 2024, however, the worst is likely to be over according to Frannie Mae, with activity declining by just 1 percent.
The biggest source of this hit is likely to be in the multifamily sector, with Frannie Mae saying that a large proportion of new construction is ready to come online later in 2023 and into 2024. When viewed through the lens of tighter credit restrictions for construction lending - another offshoot of the Fed’s higher base rates - new projects will likely slow as well, Frannie Mae economists predicted. Even with single-family homes still performing well, this drop in activity will likely be enough to drag the housing market down as a whole.
Frannie Mae paints a bit of a bleak picture, especially as the financial powerhouse predicts the housing market is going to be a contributory factor in dropping the US economy into a modest recession in the coming year. Yet the housing market, according to them, is on track for a minor correction, not a major crash, with home prices bottoming out at just 5.28% lower than they were in the 2nd quarter of 2022. This means that the housing market will act as a hedge, eventually putting the brakes on a longer, deeper recession. Low resale inventory is the biggest reason we won’t see a national home price crash, as Frannie Mae says that active inventory is still 40 percent below its pre-COVID levels.
That’s not the only bright spot, though. There’s a lot of regionality in the housing market, and even as average activity levels might trend in one direction there are pockets of higher, more robust, or healthier activity in others. A recent example of this can be clearly seen in regions like the Southeast, where research from Bankrate has found that momentum has swung high recently. Even as home values and mortgage rates fluctuate throughout the rest of the country, markets like Gainesville, Georgia, Knoxville, Tennessee, and Charlotte, North Carolina are all showcasing strong, healthy market growth. Bankrate did point out that while it’s nothing like pre-pandemic demand, the Southeast is still going strong and is clearly bucking the national trend.
Bright spots in an otherwise not-so-great outlook like the Bankrate report give credence to Frannie Mae’s forecasts. Even if the housing market, in general, is going to decline over the next few quarters, there will be holdouts like the Southeast that will prevent the market overall from entering freefall, leading to a correction rather than a crash. This spells good news in general for the US economy, as this will limit the depth of an overall recession, hopefully cutting it short and leading to the trough being shallower than it would be otherwise.
Yet even with this “good news” comes the prospect of pain. Not every real estate professional will be working in a market that’s going to be a holdout against the national trend. This means that, no matter what sector you specialize in, it’s time to start putting plans in place now to weather the coming storm. Even if it’s going to be more of a nor’easter and less of a hurricane, you’re still likely to get a little soaked, so battening down the hatches now is going to put you in a better position than if you were taken unawares.
If Frannie Mae’s forecasts can be trusted - and they’re usually pretty accurate - forewarned is forearmed. The housing market will dip. What you need to do now is to not let it take you by surprise. We recommend that you keep monitoring market conditions carefully, as you should already be doing as a real estate agent. Alter your strategies accordingly to the best of your capabilities, pivoting to aspects that are likely to keep your head above water, and work together with colleagues through networking opportunities to capitalize on opportunities.
At the same time, work on your own brand by playing to your strengths, showcasing yourself as an expert in your chosen specialty, and adding value to your clients by going the extra mile whenever possible. Doing so will help you stand out against the crowd in a positive way. It’s going to be a bumpy ride, but with enough hard work and preparation, you’ll come out the other side.