The US housing market, like its UK counterpart, has experienced a significant downturn, attributed mainly to rising interest rates. However, there’s a glimmer of hope on the horizon, with expectations of a recovery in the latter half of 2024.
A Market in Malaise
The US housing market has been in a state of decline, much like we’ve seen in the UK. This downturn is largely due to the Federal Reserve’s decision to raise interest rates. These rates have soared from a modest 0.25-0.50% in March 2022 to a substantial 5.25-5.50% by July 2023. High-interest rates generally lead to increased borrowing costs, which can dampen housing market activity.
The Turning Point, Second Half of 2024
According to Ellen Zentner, Morgan Stanley’s chief U.S. economist, there’s an expectation for the housing market to begin its recovery in the second half of 2024. This optimistic outlook is based on the prediction that housing affordability will improve. As home sales are expected to remain weak in the early part of 2024, the uptick in activity is likely to gain momentum towards the end of the year and continue into 2025.
The Role of New Builds
An interesting aspect of this recovery is the anticipated contribution from new housing constructions. With the market’s movement slowing down, a significant portion of housing supply is expected to come from new builds. This is an important factor to consider, as it indicates a potential shift in market dynamics from existing homes to new constructions.
Home Prices and Inventory
Zentner predicts that home prices might experience modest declines. This forecast is based on the growth in inventory, which is expected to balance out the increase in demand. For property investors, this could mean a more competitive market with potentially lower entry points in the near future.
Interest Rates and Economic Growth
A crucial element in this prediction is the Federal Reserve’s approach to national interest rates. Zentner anticipates the Fed to maintain a steady rate, followed by a slight reduction of a quarter point around June of the next year. This adjustment could be a pivotal factor in enhancing housing affordability and stimulating market activity.
Moreover, the US Gross Domestic Product (GDP) growth is projected to decelerate, dropping from 2.5% in 2023 to 1.6% in 2024, and further to 1.4% in 2025. This slowdown in economic growth could have complex implications for the housing market, potentially affecting consumer spending power and investment trends.
Conclusion: A Window of Opportunity
For those considering property investment, particularly in the US market, this forecast suggests a window of opportunity may be opening in the latter half of 2024. The expected improvement in housing affordability, coupled with the shift towards new builds and the predicted adjustments in interest rates, presents a scenario that could be advantageous for both domestic and international investors.