Today's housing bear market: Are there silver linings?

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Rising interest rates have been contributing to a sharp slowdown in housing. Here's what to watch for next.
Is there a bear in your neighborhood? A bear market, that is. Many homeowners who locked in at low mortgage rates are opting to stay put and that's been contributing to a sharp slowdown in U.S. home sales and the supply of available inventory. But there are some bright spots on the horizon. Watch our video to learn more and also read the column There's a Bear Market in New Neighbors (PDF) in the Chief Investment Office's Capital Market Outlook.


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Today's housing bear market: Are there silver linings?
Please read important information at the end of this program. Recorded on 9/18/2023
[Lauren Sanfilippo speaking throughout]
Watch out! There could be a bear in your neighborhood — or rather, a bear market. And the evidence isn't paw prints or overturned garbage cans. It's a lack of "for sale" signs.
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Lauren Sanfilippo
Senior Investment Strategist, Chief Investment Office
Merrill and Bank of America Private Bank
Hi, I'm Lauren Sanfilippo, with a look at today's tough housing market and also what could be some bright spots ahead.
We consider housing to be in a bear market due to the significant downturn in activity we've been seeing this year.
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What's feeding the bear?
  • Only 1% of homes changed ownership in 1H 2023
  • Homes for sale lowest since 1999
Sources: Redfin, National Association of Realtors, Data as of 6/30/2023
Just 1% of U.S. homes changed ownership in the first half of this year. That's the lowest turnover rate in a decade. And the inventory of single-family homes for sale was the lowest in more than 20 years.
What's behind this sharp slowdown?
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Average 30-year mortgage above 7%
(Source: Freddie Mac, as of 9/14/2023)
After years of ultra-low interest rates, the average 30-year fixed-rate mortgage remains north of 7%, hovering near 20-year highs.
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That's taking a toll on affordability
Along with rising home prices, that's taking a toll on affordability, especially for younger and first-time buyers.
What's more, homeowners who already locked in at low rates aren't budging.
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"Locked in" at low rates
  • 90% of mortgages less than 6%
  • 23% of mortgages less than 3%
Sources: Federal Housing Finance Agency; National Mortgage Database, Data as of July 2023
More than nine in 10 mortgage holders are paying less than 6%, and nearly one in four have rates below 3%.
This "stay put" trend means less available homes for sale.
But there are some silver linings.
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Some silver linings
  • New homes sales getting a boost
The low supply of existing homes is helping boost new home sales and construction.
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Some silver linings
  • Near record levels of home equity
U.S. homeowners are sitting on near-record levels of home equity. That could give them access to lines of credit they could use to renovate, consolidate debts or manage cash.
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Some silver linings
  • Potential investment opportunities in homebuilder and consumer discretionary stocks
It could also mean potential opportunities for investors in areas like homebuilder and consumer discretionary stocks.
In addition, as we move through the cycle, opportunities to add to real estate exposure in your overall asset allocation strategy, could make sense.
While the bear might be prowling the neighborhood for a bit longer, current high rates of home equity and strong household balance sheets could be a key to a resilient economy and markets.
Thanks, and see you again soon.
[On-screen disclaimers]

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