One of the differences between the 2008 housing recession and what is happening in 2022 is the speed at which 2008 happened. I remember waking up one morning, going to work as a modular home sales rep and being told that our company was closing the production line until further notice.
No warning from the factory management but I knew it was coming as I had lost new home orders from several of my builders the week before. I was the last rep left working there and I decided to retire before my last day. That’s when I started writing my blogs. One door closes, and another opens.
Today new and existing home markets are declining and unlike 2007-8, there are a lot of signs indicating either a correction or more likely, a housing recession is going to happen as early as Spring 2023.
Here are three indicators:
Existing home sales declined 1.5 percent to a seasonally adjusted annualized rate (SAAR) of 4.71 million in September, according to the National Association of REALTORS®, the eighth consecutive monthly decline. Over the third quarter, existing sales averaged a SAAR of 4.77 million. The inventory of existing homes for sale declined 2.3 percent to 1.25 million after its summer peak. The month’s supply was flat at 3.2 for the third consecutive month. The median price of existing homes sold, which is not adjusted for home characteristics or location, increased 8.1 percent over the year, a slight deceleration from last month.
Housing starts declined 8.1 percent in September to a SAAR of 1.44 million, according to the Census Bureau. Over the third quarter, starts averaged a SAAR of 1.46 million units. Single-family starts were down 4.7 percent to a SAAR of 892,000, while the volatile multifamily starts series declined 13.2 percent to a SAAR of 547,000 after a 32.1 percent jump in August. Single-family permits declined 3.1 percent to a SAAR of 872,000, the seventh consecutive monthly decline, while multifamily permits increased 7.8 percent to a SAAR of 692,000.
The National Association of Home Builders/Wells Fargo Housing Market Index declined 8 points in October to 38, its tenth consecutive monthly decline and the index’s lowest level since 2012, when excluding the COVID shock. The index for single-family sales in the present declined 9 points to 45, indicating that more builders now view current sales as “poor” rather than “good.” The indices for single-family sales in the next six months and traffic of prospective borrowers declined 11 and 6 points to 35 and 25, respectively.
On the new home side, the decline in single-family starts matched our forecast and, given mortgage rate dynamics and one of the worst homebuilder surveys in a decade with an ongoing drift downward.
However, there is growing evidence that builders are beginning to work through their construction backlogs, which may result in builders offering more aggressive incentives to move inventories. If true, this would put further downward pressure on home price growth and would likely cause new home sales in the near term to be relatively resilient compared to existing home sales.
From a report by Fannie Mae
Gary Fleisher is the Editor in Chief of Modular Home Source and Offsite Builder. Email at [email protected]
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