Where are home prices headed? 

We are not economists, but it doesn’t take that much perceptive power to tell demand is fading. 

Interest rates are nearly at 7 percent, and could continue to rise, as economic conditions worsen.  Brokerage and listings portal Redfin declared last week that the typical American homebuyer’s monthly mortgage payment is now 15 percent higher than it was in mid-August.  

It seems like a recession is in the cards, with top Federal Reserve officials like Boston Fed President Susan M. Collins openly saying unemployment will likely have to go up to get inflation under control. 

As Banker & Tradesman reported recently, inventory is shrinking in part because of this economic uncertainty – the average seller can’t have much confidence that prices won’t fall if a recession does indeed hit, based on their experience of 2008. 

And both prices and interest rates are so high that not a few sellers would wind up paying more in monthly mortgage payments than they pay now for a comparable or smaller property. 

So, the market’s stuck, sinking into the mud of high interest rates and constricted supply that at least for now is keeping prices rising – albeit slowly.  

And so are the businesses that serve it. It’s not a great time to be a real estate agent or a loan originator who wasn’t at the top of their game going into this situation. 

Booms and busts are a natural part of capitalism, but there’s something rather perverse about this particular bust. It wouldn’t be nearly so bad if we hadn’t spent the last generation trying to clamp down on efforts to build enough homes to respond to demand.  

Instead, the small-time developers who historically built many of our starter homes – whether single-family or multifamily – have been driven out of business. The bigger developers who remain are incentivized to largely build for the higher end of the market because the contentious and uncertain permitting environment all but requires they offer these higher-margin products for their companies to succeed. 

If there’s a silver lining to this moment, it’s that the value of liberalized zoning and planning that let the housing sector meet consumers’ needs is clearer than ever.  

Hopefully, policymakers are able to use the next few months to follow in what look set to be Boston Mayor Michelle Wu’s footsteps and find ways to make that happen. Her plan to streamline the number of veto points in the city’s permitting process for affordable housing projects and create faster and predictable timelines for development review is perhaps the best news to come out of what was otherwise an economically gloomy September. 

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A Twisted Kind of Housing Recession

by Banker & Tradesman time to read: 2 min