Despite the United States housing market making some gains since the real estate crash a few years ago, there are still some troubling signs that could prove another downturn is expected: mortgage rates are on the uptake, the number of mortgage applications has fallen and the overall economy contracted in the first quarter.
These are all ingredients for a recipe that will slow down any growth the real estate market will incur over the next two years. According to a Reuters poll of analysts, housing price increases will likely slow further because of a paucity of first-time homebuyers, intensified lending standards and diminishing wage growth.
Analysts did not foresee any substantial assistance to allow the housing market to make significant gains. Instead, the housing market has lost a considerable amount of momentum because of the brutal winter weather North America just finished experiencing as well as soaring mortgage rates.
“It is improving slowly, which is good. It should be measured. We don’t want to go back to stupid money,” said Mark Goldman, a real estate expert at San Diego State University, who had referred to subprime lending when it was widespread and led to astronomical housing prices on the eve of the Great Recession. “We are seeing a state of equilibrium. I don’t see any symptoms that would cause housing prices to go up or down significantly.”
Last month, Federal Reserve Chair Janet Yellen told a Congressional committee that the U.S. economy was on the right track, but the central bank will keep an eye out on the housing market because it could pose a risk to the recovery.
Yellen also reaffirmed her commitment to reductions in the Fed’s monthly bond-buying initiative. She also projected that its balance sheet will reach lower levels but did not promise if it will return to pre-crisis levels: prior to the Great Recession, the Fed’s balance sheet was at $500 billion, but now it’s more than $4 trillion.
“As long as we continue to see improvement in the labor market and we believe the outlook is for continued progress, and as long as we continue to believe and see evidence that inflation will move back up over time to our 2 percent longer-run objective, we anticipate continuing to reduce the pace of our asset purchases in measured steps,” said Yellen in testimony on Capitol Hill.
“The (Fed Open Market) Committee anticipates that our balance sheet over time will move down to substantially lower levels than it is now. Whether or not it will ultimately return to pre-crisis levels…or remain somewhat larger is something that we will determine as we gain experience with exit.”
Some fear that the real estate market is reaching a bubble. David Stockman, former Reagan budget director and author of “The Great Deformation,” opined that the U.S. is in a “housing bubble 2.0,” citing speculation, low interest rates and a lack of a “real organic sustainable recovery.”
When the Reuters analysts were asked to rate if the U.S. housing market was rated fairly on a scale of one and 10, the views ranged between three and 7.5.