NEW YORK – The rock-hard foundation of the U.S. housing market is suffering some cracks, but an outright collapse is nowhere in sight.

Regardless, sensational news headlines are reverberating like seismic tremors around the country. Here are recent inflammatory headlines from legitimate websites:

• “U.S. home prices are about to tumble as demand for new houses ‘craters,’ an economist warns.” (BusinessInsider)
• “Homebuilder confidence suffers near-record plunge” (Newsweek)
• “Scary times: builders are slashing home prices and slowing construction as buyers pull back, survey shows” (MarketWatch)
• “The housing market is entering the ‘most significant contraction in activity since 2006,’ says Freddie Mac economist” (Fortune)

Gloomy reports like these can be enough to make builders halt building. Or to prompt homebuyers to delay buying. Or to discourage mortgage brokers from lending.

In an unintentional collaboration, depressing news can have a chilling effect on the housing market. They create a negative tone.

In recent years, however, the real estate market has been resilient, through the ups and downs of the U.S. economy, through pandemics. On a national level, home prices soared 40% over the past two years, according to the Case-Shiller Price Index.

These price increases have been even bigger in Northeast Florida. And even more so in trendy places like Amelia Island, where a hearty demand outstrips a limited supply of houses and condominiums and raw land.

A new complication has clouded the housing picture in recent months, however. It’s the almighty Fed.

With its eye on cooling down inflationary prices, the Federal Reserve has embarked on a campaign of interest rate hikes. Therefore, borrowing costs have inevitably increased for homebuyers.

Meanwhile, the U.S. economy is sputtering, bordering on the brink of a mild recession. Inflation rages at the hottest pace in 40 years. However, employment is still healthy – contrary to most recessions. So there are mixed economic signals.

With U.S. stocks dipping into bear market territory, the economic backdrop for real estate has ultimately darkened. Homebuilding stocks have also cratered – a leading indicator of what potentially lies ahead.

“The market is adjusting to a new reality, with much lower sales volumes and far more inventory,” says Ian Shepherdson, chief economist at Pantheon Macro. “Prices, therefore, have to adjust to the downside, likely quite substantially.”

With Federal Reserve’s recent moves, mortgage rates have doubled from previous levels. As expected, mortgage applications have dropped off a cliff – to the lowest level since 2000.

The same level of decline has been seen in homebuilder confidence. A measure of this confidence dropped precipitously in July. Consequently, prices of new homes should follow a similar downward path, although the trajectory is the question.

The number of home listings remains low nationally. However, new listings increased at the fastest pace in five years, according to Realtor.com. And listing prices are being reduced in some red-hot markets (Austin, Las Vegas, Nashville).

But all these measures and statistics and sensational headlines must be put into context. Home prices are still near record levels, in most places. Here in Nassau County, prices are still at record levels, especially around Amelia Island.

Cracks in a foundation will usually spread over time. And only time will tell how the housing market endures, through the obstacles and challenges.

Copyright © 2022 News Leader, Community Newspapers, Inc. All rights reserved. Steve Nicklas is a financial adviser with a national brokerage firm who lives and works on Amelia Island.