Los Gatos Weekly Times
Road ahead for housing will be `the same or better,' economist tells Realtors
Mlslistings, the multiple listing service that primarily serves the counties of San Mateo, Santa Clara,
San Benito, Santa Cruz and Monterey, checked in last week with its partner economist,
Dr. Elliot Eisenberg, to learn his views on what lies ahead for the economy and housing market. Despite higher interest rates and the low housing supply nationwide, Eisenberg’s outlook about the future of the housing market remains positive.
Eisenberg told members of the Silicon Valley Association of Realtors and other Mlslistings subscribers that the housing market situation hasn’t changed much. Many would-be sellers are reluctant to move even if they need that extra bedroom because it would mean giving up their low mortgage interest rate. However, the market is not at a standstill.
Mortgage interest rates are hovering above 7%, but despite these high interest rates, due to changes in life circumstances, people are buying homes. With demand greater than supply, home prices are back on the rise. In fact, Jessica Lautz, National Association of Realtors deputy chief economist, noted in her blog last week that “35% of homes are going for more than the asking price due to low inventory, with the typical seller receiving three offers.”
The inflation rate in July was at 3.2%. Although way down from its peak of 9.1% in June 2022, this is still not close to the Fed target of 2%. Eisenberg explained the Fed may still be wary since the core inflation rate, which is an important economic indicator that measures the longterm trend in inflation excluding volatile items like food and energy, was at 4.7% in July. If this indicator does not let up, it’s possible that the Fed could go for at least one more interest rate hike, perhaps not this month, but maybe later in the year.
“The Fed very clearly wants a 2% inflation rate,” said Eisenberg.
There are risks to yet another rate hike. Consumer spending is still vibrant, but credit card balances are rising, and the extra Covid stimulus money is expected to soon run out. “High interest rates will slowly gnaw away” and consumers will be forced to cut spending and home prices may be impacted, said Eisenberg.
There are also headwinds for the economy around the corner, such as the pending auto sector strike on September
15, the threat of a government shutdown if Congress doesn’t reach a spending deal by the end of the month, and student loan payments will be back on track come October.
However, Eisenberg feels whether the economy has a soft or hard landing, housing benefits could be “the same or better.” He believes interest rates will fall eventually, though not anytime soon, because even if inflation returns to 2%, the Fed can’t risk lowering rates immediately for fear that inflation could return.
Eisenberg noted the migration movement has slowed as more employers are mandating their employees to work more days in the office. This may bring life back to cities like San Francisco. Eisenberg has no doubt that San Francisco will eventually bounce back in the long run because the city is a
“fun place” with the cultural attraction of the arts, music and entertainment.
Eisenberg said the stock market and IPOS “are in the freezer right now, but nothing stays in the freezer forever.” He is optimistic that financial conditions eventually will bounce back. He feels the same way about tech in Silicon Valley - maybe not in as large an amount, but tech will come back.
“Bide your time.
Wait and be patient. Don’t overreact,” said Eisenberg.
Eisenberg is the chief economist for Graphs and Laughs, LLC, a Miami-based economic consulting firm that serves clients across the U.S. He writes a syndicated column and a daily 70-word commentary on the economy.