Experts Say We're in a Housing Recession. Here's What That Really Means

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KEY POINTS

  • The housing market seems to be undergoing a shift.
  • While some insiders are calling it a recession, in practice, it's anything but.


Should sellers be worried?

For months on end, home buyers have had no choice but to grapple with sky-high prices, limited inventory, and endless bidding wars. And this year, higher mortgage rates were thrown into the mix to make buying a home even more difficult.

But things seem to be shifting in the housing market, so much so that some experts are even going as far as to say that it's in a recession. But is that really true? And how will that impact buyers and sellers?

The lowdown on the housing market

A recession, in the context of the housing market, is commonly marked by a period of declining home sales. So on the basis of that, you could technically say we're in a housing market recession.

In July, existing home sales fell to 4.81 million, according to the National Association of Realtors. That marks six consecutive months of declining sales. It also marks a 5.9% drop in home sales from June and a 20.2% drop from one year ago.

But while home sales may be slowing, home prices aren't. In July, the median home sale price was $403,800. And while that's down $10,000 from June's record high of $413,800, it also marks a 10.8% increase from July of 2021. All told, home prices are still inflated, which means buyers today still need to pay a premium and sellers are still in a great position to command higher-than-usual asking prices.

Will things get worse for sellers?

Clearly, from a home-price perspective, the housing market is not in a slump. But could things change? That's really the big question.

Over the past few months, housing inventory has been slowly but steadily increasing. As more inventory hits the market, buyers will have more options to choose from. That means bidding wars are likely to decrease and home prices could start to come down.

This isn't something sellers should panic over. Because home prices are so inflated right now, there's a lot of room for downward movement that would still allow them to walk away happy with the offers they get. But sellers should be aware that housing market conditions may be shifting in buyers' favor. And so those who are serious about selling a home may want to do so sooner rather than later.

At the same time, buyers may want to sit tight for a few more months and see if inventory picks up substantially. If that happens, home prices could start to drop to more moderate levels.

Of course, the big question mark in all of this will be mortgage rates. Will they rise during the latter part of 2022?

We can't say with certainty which direction rates will head in. But it is fair to assume that the days of record-low borrowing rates are behind us for now. And so rather than focus on rates from mortgage lenders, buyers may instead want to look at factors like inventory and prices to dictate when they decide to make an offer.

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