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2. Credit availability is exceptionally tight, and regulators removed faulty financial products

The housing market is expected to stay strong, mainly due to the current limited credit availability. This is a significant contrast to the situation in 2008, where obtaining loans was considerably more accessible for borrowers. During that time, several unsafe mortgage products enabled individuals with low credit scores to qualify for loans, but those have since been eliminated from the market. The 30-year fixed mortgage is the primary product, providing a more stable option for borrowers and lenders.

Second, the researchers said millennials are continuing to age into homebuying, even though a lot of Millennial demand has been satisfied over the last few years. Millenials are those currently between 25-40 years-old.

Ellen Zentner, Morgan Stanley's chief US economist, also recently told Insider that millennials and Gen Z homebuyers continuing to enter the market is a major reason she thinks home prices will only fall 2% in 2023.

But forget about a crash like we saw then, say Harvard University researchers.

In a report published June 21, researchers at the Harvard Joint Center for Housing Studies said home price growth would probably stagnate as high mortgage rates continue to weigh on demand. Despite the huge run up in prices seen over the last few years, there are too many factors acting as a floor under home values to see significant declines, they said.

We construct a new systemic risk measure that quantifies vulnerability to firesale spillovers using detailed regulatory balance sheet data for U.S. commercial banks and repo market data for broker-dealers. Even for moderate shocks in normal times, fire-sale externalities can be substantial. For commercial banks, a 1 percent exogenous shock to assets in 2013-Q1 produces fire sale externalities equal to 10 percent of system equity. For broker-dealers, a 0.1 percent shock to assets in August 2013 generates spillover losses equivalent to almost 6 percent of system equity. Externalities during the last financial crisis are between two and three times larger. Our systemic risk measure reaches a peak in the fall of 2008 but shows a notable increase starting in 2005, ahead of many other systemic risk indicators. Although the largest banks and broker-dealers produce – and are victims of – most of the externalities, leverage and “connectedness” of financial institutions also play important roles.

This secular bull market—the least loved in memory—is now more than 100 months old, and up by 265% from its bottom on March 9, 2009.1 It is also the second longest bull market on record (after the 1990s’ dot-com boom) and fourth largest in terms of market advance.

For some investors, the sheer age of this cycle is enough to cause consternation. Yet there is nothing magical about the passage of time. As we have said time and again, bull markets do not die of old age. Like people, bull markets ultimately die when the system can no longer fight off maladies. In order for the cycle to end there needs to be a catalyst—either a major policy mistake or a significant economic disruption in one of the world’s major economies. In our view, neither appears to be in the offing:

“The improvement in [housing] demand we started to see in February was sustained throughout our second quarter, as we achieved monthly sequential increases in our net orders,” Mezger told investors on Wednesday. “We are well-positioned to achieve our revenue target for 2023.”

What’s going on? Two things.

You might hear people freaking out asking if the housing market is in a bubble. The term housing bubble describes a period of skyrocketing home values. Prices go up and up until—pop! The bubble bursts and home values plunge. That would be scary. But it doesn’t look like that’s happening.

It's true that home values experienced rapid growth following the impact of COVID-19—but that spike started softening in the middle of 2022. Home values began hitting double-digit annual growth in mid-2020 and mostly kept up that trend until 2022. And now we’re back down to single-digit annual growth—along with slight declines in some markets. But there are still no signs of prices crashing.

Due, in part, to the ongoing inventory crunch keeping home prices elevated, many economists predict the housing market is more likely to correct itself from the double-digit percentage jumps in home prices we’ve seen over the past few years rather than crash.

S&P CoreLogic Case-Shiller Home Price Index posted a month-over-month national price growth reading of 1.3% for March before seasonal adjustment. After a seasonal adjustment, the month-over-month increase was 0.4%.

(Zonda chief economist Ali Wolf, “The housing market recession is ‘over’ in the new-home space, top economist Ali Wolf says, but she’s hesitant on what comes next,” pg online @ https://fortune.com/2023/06/22/housing-market-recession-over-for-homebuilders-real-estate-outlook-2024/ //um-ef)

Back in September, Fed Chair Jerome Powell told reporters that the U.S. housing market was passing through a “difficult [housing] correction” that would restore “balance” to the market. At the time, new-home sales and existing home sales were falling fast as spiked mortgage rates created a buyer affordability shock. Things were even worse in Western housing markets, like Reno and Boise, where they had not only slipped into a housing recession—a sharp pullback in activity levels—but also full-blown home price corrections. Fast-forward to June 2023, and that so-called housing recession and housing correction looks long gone as resurgent 2023 buyer demand has translated into an uptick in everything from national home prices to new-home sales. Even Powell thinks the bottom is in. “We now see housing putting in a bottom, and maybe moving up a bit. We’re watching that situation carefully. I do think we’ll see rents and house prices filtering into housing services inflation [overall housing costs as tracked by the consumer price index], and I don’t see them coming up quickly. I see them wandering around at a low level,” Powell told reporters earlier this month. Are we in the early innings of a housing recovery? Does downside risk still remain? To better understand what’s going on in the housing market, Fortune reached out to Zonda chief economist Ali Wolf. When she’s not traveling around the country speaking to homebuilders, she’s advising the White House on housing matters. Below is Fortune’s Q&A with Ali Wolf. Fortune: Homebuilders have seen a significant improvement this spring. New-home sales are rising, and resale, or existing, inventory remains tight. Do builders expect the worst is behind them? It’s important to talk about where we are coming from to talk about where we are. Demand last year in many markets across the country slowed, with some markets feeling the cooling as early as March 2022 and others not until October or November. During the period, quick move-in home inventory—new homes that can be moved into within 90 days—started to build up. This made builders nervous that we had found the end of the housing market cycle, and they started to offer discounts and incentives to help move the product. At the same time, many made a decision to stop building more quick move-ins as standing inventory can be a liability when the market slows. What’s interesting is that we saw price elasticity play out in real time. Consumers returned to the market on the lower prices and incentives. This matched our consumer survey data at Zonda that showed the number one reason renters were renting was because they were “waiting for prices to come down.” The uptick in demand changed sentiment about the market. Instead of thinking the housing market was crashing, people started to see that there were deals available, which helped encourage those on the sidelines to reenter the market. The housing market in 2023 so far has far exceeded expectations. Builder sentiment has turned positive again. Builders are starting more homes and are enthusiastic about the demand pool. I’d say most are using the phrase “cautiously optimistic” [regarding] what the future holds. Some are still nervous about broader macro considerations, but many feel good that housing demand has held up despite 6.5% to 7.0% interest rates. It looks like mortgage rate buydowns, in particular, have helped builders “find the market” this spring. Given the sales improvement, could builders soon pull back on buydowns or incentives? Since the middle of last year, the majority of new-home communities have been offering incentives to help sweeten the deal for consumers. These incentives range from help with closing costs to funds for options and upgrades and flex dollars. The most effective incentive when it comes to housing affordability, though, is what is known as a mortgage rate buydown. Builder-funded mortgage rate buydowns come in two forms. Option one: Builders can offer an adjustable-rate mortgage. This is one where the builder offers the consumer a mortgage with a low interest rate in the first year that progressively goes higher over typically three to five years. Unlike last cycle, the consumer has to qualify for the higher rates so poses less of a systemic risk to the wider economy. Option two: Builders can offer a 30-year fixed rate buydown. This is more costly to the builder but ensures that the monthly payment is fixed for the consumer over the life of the loan. Active home shoppers don’t typically go into a new-home community knowing the jargon and understanding the impact of mortgage rate buydowns, but learn from the sales team what it means for their monthly mortgage payment. The significance of mortgage rate buydowns in today’s housing market cannot be overstated. Buydowns have addressed the key issue in the housing market today—housing affordability. The buydowns have also been a key selling point from the new-home community compared to existing homes. We don’t believe mortgage rate buydowns will stay in the market indefinitely, though, especially if builder margins get compressed and/or sales stay solid. With higher sales so far this year, builders have been less generous with incentives than in the past. At the end of last year, incentives were almost guaranteed. Today, we are seeing incentives being offered more on a case-by-case basis. After falling for seven straight months, U.S. home prices as measured by the seasonally adjusted Case-Shiller National Home Price Index rose in February and March. Does that mean that U.S. home prices have bottomed—or do downside risks still remain? Where do you see house prices heading from here? Objectively, the housing recession in the new-home space is over. Home sales are rising, starts are rising, and home prices are rising again. The big question is—is that it? Are we back in growth mode from here? I’m not so sure it is a straight line up. There are still broader economic concerns that could impact housing demand, including potential turmoil following the Federal Reserve’s restrictive policy, a significant pullback in consumer spending, or even the fallout from the commercial real estate sector. We are watching closely to see if there’s a double-dip recession in housing or if demographic-supported demand is enough to withstand wider issues.

As President Biden said last week, tackling inflation is his top economic priority. Today, President Biden is releasing a Housing Supply Action Plan to ease the burden of housing costs over time, by boosting the supply of quality housing in every community. His plan includes legislative and administrative actions that will help close America’s housing supply shortfall in 5 years, starting with the creation and preservation of hundreds of thousands of affordable housing units in the next three years. When aligned with other policies to reduce housing costs and ensure affordability, such as rental assistance and downpayment assistance, closing the gap will mean more affordable rents and more attainable homeownership for Americans in every community. This is the most comprehensive all of government effort to close the housing supply shortfall in history.

The Plan will help renters who are struggling with high rental costs, with a particular focus on building and preserving rental housing for low- and moderate-income families. The Plan’s policies to boost supply are an important element of bringing homeownership within reach for Americans who, today, cannot find an affordable home because there are too few homes for sale in their communities. And it will help reduce price pressures in the economy, as housing costs make up about one-third of of the market basket for inflation, as measured by the Consumer Price Index.

The housing market is always in flux, and predictions for the future can be challenging to make. However, experts are making some educated guesses about what we can expect in the coming years. Here's a look at some housing market predictions for 2023. According to a Forbes Advisor article, home prices are expected to continue to come down slowly, making it difficult for many homebuyers to access affordable housing.

However, the article notes that there may be some relief for buyers in the form of more inventory becoming available on the market. This may help to level out the playing field, making it easier for more people to find a home that they can afford. Another prediction from US News & World Report is that the housing market will experience a relatively shallow recession that stops and starts in 2023.

The next economic crisis is closer than you think. But what you should really worry about is what comes after: in the current social, political, and technological landscape, a prolonged economic crisis, combined with rising income inequality, could well escalate into a major global military conflict. The 2008-09 global financial crisis almost bankrupted governments and caused systemic collapse. Policymakers managed to pull the global economy back from the brink, using massive monetary stimulus, including quantitative easing and near-zero (or even negative) interest rates. But monetary stimulus is like an adrenaline shot to jump-start an arrested heart; it can revive the patient, but it does nothing to cure the disease. Treating a sick economy requires structural reforms, which can cover everything from financial and labor markets to tax systems, fertility patterns, and education policies.1 Policymakers have utterly failed to pursue such reforms, despite promising to do so. Instead, they have remained preoccupied with politics. From Italy to Germany, forming and sustaining governments now seems to take more time than actual governing. And Greece, for example, has relied on money from international creditors to keep its head (barely) above water, rather than genuinely reforming its pension system or improving its business environment. The lack of structural reform has meant that the unprecedented excess liquidity that central banks injected into their economies was not allocated to its most efficient uses. Instead, it raised global asset prices to levels even higher than those prevailing before 2008. In the United States, housing prices are now 8% higher than they were at the peak of the property bubble in 2006, according to the property website Zillow. The price-to-earnings (CAPE) ratio, which measures whether stock-market prices are within a reasonable range, is now higher than it was both in 2008 and at the start of the Great Depression in 1929. As monetary tightening reveals the vulnerabilities in the real economy, the collapse of asset-price bubbles will trigger another economic crisis – one that could be even more severe than the last, because we have built up a tolerance to our strongest macroeconomic medications. A decade of regular adrenaline shots, in the form of ultra-low interest rates and unconventional monetary policies, has severely depleted their power to stabilize and stimulate the economy. If history is any guide, the consequences of this mistake could extend far beyond the economy. According to Harvard’s Benjamin Friedman, prolonged periods of economic distress have been characterized also by public antipathy toward minority groups or foreign countries – attitudes that can help to fuel unrest, terrorism, or even war. For example, during the Great Depression, US President Herbert Hoover signed the 1930 Smoot-Hawley Tariff Act, intended to protect American workers and farmers from foreign competition. In the subsequent five years, global trade shrank by two-thirds. Within a decade, World War II had begun. To be sure, WWII, like World War I, was caused by a multitude of factors; there is no standard path to war. But there is reason to believe that high levels of inequality can play a significant role in stoking conflict.3 According to research by the economist Thomas Piketty, a spike in income inequality is often followed by a great crisis. Income inequality then declines for a while, before rising again, until a new peak – and a new disaster. Though causality has yet to be proven, given the limited number of data points, this correlation should not be taken lightly, especially with wealth and income inequality at historically high levels. This is all the more worrying in view of the numerous other factors stoking social unrest and diplomatic tension, including technological disruption, a record-breaking migration crisis, anxiety over globalization, political polarization, and rising nationalism. All are symptoms of failed policies that could turn out to be trigger points for a future crisis.

UBI enthusiasts can see the prospect of their dream coming true as our economies – so utterly reliant on wage-earning – struggle to come to terms with lockdown. But a hasty introduction of UBI without fully understanding its effects on some essential components of our economy could undermine its effectiveness and provide its opponents with ammunition.

UBI will significantly increase the disposable income of the population as a whole, providing the productive economy with lots of opportunities for new business. However, not all of these opportunities will be beneficial to us, individually or collectively.

“The improvement in [housing] demand we started to see in February was sustained throughout our second quarter, as we achieved monthly sequential increases in our net orders,” Mezger told investors on Wednesday. “We are well-positioned to achieve our revenue target for 2023.”

What’s going on? Two things.

The news that housing prices have spiraled upward in the last twelve months has reached the White House, prompting it to announce what it calls its Housing Supply Action Plan. According to the Biden administration, the plan will help provide an estimated 1.5 million additional housing units that the United States desperately needs. Unfortunately, its mishmash of subsidies and federal incentives will not close that gap anytime soon, if ever. Worse still, the administration’s most significant near-term change in housing policy, not mentioned in the action plan, will make matters worse — leading to a sad combination of inflation and government dependency. That would be the impact of a vast proposed expansion — by no fewer than 200,000 vouchers — of the housing-voucher program for poor households. Housing policy is overwhelmingly a matter of local zoning and regulation. The Biden administration’s plan, to its credit, acknowledges that — and proposes an original approach to rewarding localities that opt to allow more construction through higher density. Not dissimilar to the Obama administration’s Race to the Top, which dared to reward charter schools, this $1.75 billion competitive-grant program would reward communities that relax zoning barriers. It’s the same idea that was included in the House-passed version of the ill-fated Build Back Better bill. The devil here will be in the details. If the grants are tied to all sorts of social goals — such as school diversity or green energy — we’d be better off without HUD sticking its nose further into local government. We’ve seen that happen before with the Obama-era Affirmatively Furthering Fair Housing program, which sought to influence school location and other traditionally local decisions through the rubric of housing. One wishes here for a less intrusive approach overall — model zoning ideas for municipalities to consider, for instance, rather than grants, with their inevitable complexity. Less ambiguously counterproductive is the administration’s expansion of the Low Income Housing Tax Credit program, which subsidizes private construction of apartment buildings that combine market-rate units with income-restricted ones. Since its inception in 1986, this approach has financed 3 million housing units — through annual tax subsidies of $8 billion. Not only would expansion of such credits be slow to have any effect on the current housing shortage, but the program has long fanned housing-cost inflation. Construction costs have long averaged 20 percent more than non-subsidized counterparts. Indeed, the per-unit costs are eye-popping. In California, they average $480,000 per apartment. The Biden proposal that will have the most immediate inflationary effect is not only bad housing policy, but terrible social policy. The administration’s proposed $71.9 billion HUD budget for fiscal year 2023 would add 200,000 housing vouchers. That’s a 14 percent addition to the nearly 1.4 million vouchers already distributed to local housing authorities. Voucher households are marked by a high percentage of single-parent families (56 percent), compared with those in which children are raised by two parents (8 percent). Because deeper poverty leads to voucher priority, the program effectively rewards single parenthood and likely encourages the formation of such households. In contrast to cash welfare assistance, vouchers come without a time limit. And because rent is tied to income, an increase in earnings leads to higher rent — a powerful disincentive to upward mobility. African Americans, who make up 40 percent of voucher households, are particularly harmed. What’s more, the additional vouchers will inject a wave of new federal funding, juicing demand — and price inflation — for all rental housing. That’s the effect of subsidized demand in a market without much new supply. The move will not diminish inflation; it will increase it. Since the advent of public housing, federal policies have distorted housing markets for the worse. The Biden administration has at least signaled that it understands that regulation discourages construction. More broadly, however, it continues to double down on costly construction subsidies and dependency-inducing housing assistance. If diminishing inflation were really its top priority, it would not be pursuing the housing policies it has embraced.

Clearly, there are other reasons for this phenomenon: among them, the President's desire to take political credit or, on the flip side, his recognition that, whatever the outcome, he will be saddled with the political blame. The American public seems to equate the President with the Fourth Branch. Advances in technology and media may be exacerbating this effect. This phenomenon, however, cuts both ways. The President may be inclined to make policy decisions himself so that he can take the credit if the outcome is politically popular, but he may prefer to leave policymaking to his subordinates so that he can distance himself if the outcome is not politically popular. This does not, therefore, account fully for the dramatic [*557] rise in presidential direct action described below.

[FOOTNOTE]

Executive Power Is Expensive While Trump abused executive power frequently, don’t be tempted by calls for Biden to take revenge and do the same thing. The short term gains may be enticing, but the longer term costs are much bigger than they might appear to be at first. Trump found out the hard way that pushing for things like the border wall, fights against LGBT rights, and attempts to prop up the failing coal industry alienates reasonable people. It’s easy to say “Trump did it! We can too!”, but don’t forget that was part of his undoing. The worst thing a President Biden could do is use unconstitutional executive orders for something divisive like gun control. Yes, Trump actually did this, because he thought it would make him look good after the Las Vegas shooting, but it divided his own supporters. Loyalists made excuses or claimed it was part of some elaborate game to “beat the libs,” while people who really believed in gun rights deeply lost trust in Trump. Make no mistake, a Democratic president doing this would quickly earn the hostilities of both camps and suffer a deeper cost than Trump did. That’s just one example. There are many other little regulatory things a President Biden could do to put the screws to Republicans, but in most cases it simply isn’t worth it when we need real legislation to get the job done.

Here, we take a different tack and emphasize the informal political∂ costs of unilateral action. Specifically, we argue that presidents consider∂ more than just whether Congress or the courts will act affirmatively to∂ overturn a unilateral presidential order. Rather, presidents consider the∂ longer-term political costs that unilateral action may entail. These∂ political costs can take many forms, two of which are particularly∂ important. First, when presidents act unilaterally, they may burn∂ bridges with members of Congress opposed to the action on political,∂ ideological, or even constitutional grounds. To be sure, in almost all∂ circumstances, presidents will be able to carry the day and beat back∂ any legislative effort to undo what they have done unilaterally.∂ However, the ill will so generated on Capitol Hill may prove politically∂ costly the next time the president’s policy wishes require action that∂ only Congress can take. For example, despite being a rather blunt∂ instrument, Congress retains the power of the purse and therefore,∂ ultimately, the power to support or de-fund most policies that∂ presidents begin unilaterally.40 This echoes Neustadt’s moral from the∂ “three cases of command”—Truman’s firing of General Douglas∂ MacArthur and seizure of the steel mills during the Korean War, and∂ Eisenhower federalizing the Arkansas National Guard to integrate∂ Central High School. In each case, the president succeeded in achieving∂ his immediate policy objective. Yet, in each case, Neustadt argues the∂ victory was a pyrrhic one, coming at a high political cost. Truman’s∂ actions, in particular, only intensified ongoing battles with Congress on∂ both the foreign and domestic fronts and likely hindered Truman’s∂ efforts to extract concessions from Congress on other key elements of∂ his legislative agenda.41

Clearly, there are other reasons for this phenomenon: among them, the President's desire to take political credit or, on the flip side, his recognition that, whatever the outcome, he will be saddled with the political blame. The American public seems to equate the President with the Fourth Branch. Advances in technology and media may be exacerbating this effect. This phenomenon, however, cuts both ways. The President may be inclined to make policy decisions himself so that he can take the credit if the outcome is politically popular, but he may prefer to leave policymaking to his subordinates so that he can distance himself if the outcome is not politically popular. This does not, therefore, account fully for the dramatic [*557] rise in presidential direct action described below.

[FOOTNOTE]

Moreover, other institutions, particularly Congress, may play an important role—even when presidents know that efforts to overturn an∂ executive action will fail—by engaging in the political debate and mobilizing public pressure against the president should he act unilaterally contra congressional preferences. Decades of political science scholarship have demonstrated that the public lacks systematic knowledge∂ of politics and therefore relies heavily on heuristics when forming their∂ political judgments.48 Political elites thus become key cue-givers who∂ help inform and shape public opinion.49 Finally, citizens acquire most∂ of their knowledge about politics from the mass media. Scholars have∂ long noted that the media depend on official Washington sources for∂ information. However, a robust literature in political communications∂ goes further and argues that the media tend “to ‘index’ the range of∂ voices and viewpoints in both news and editorials according to the∂ range of views expressed in mainstream government debate about a∂ given topic.”50 When other political actors, particularly members of∂ Congress, object and criticize presidential actions in the public sphere,∂ they are all but assured of receiving considerable media coverage, and∂ they are well-positioned to influence public opinion against the∂ executive branch.51∂ In essence, we argue that while the statutory and legal constraints∂ on presidential unilateral power are weak, the political constraints are∂ quite robust.52 Unilateral actions that could provoke public ire and∂ erode the president’s political capital, thereby undermining later efforts to pursue other aspects of the president’s programmatic agenda, may∂ fail a simple cost-benefit calculation. The informal political costs of∂ acting—even when Congress and the courts are almost certainly∂ unwilling or unable to strike down the action—may outweigh the policy∂ benefits of acting unilaterally. These political costs, which are not∂ accounted for in most extant models of unilateral politics, are tangible∂ and substantial; indeed, they may explain why presidents fail to act∂ unilaterally as aggressively and on as many issues across the gamut of∂ policy as formal models suggest they should.