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Housing slump may have bottomed out

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A sign is posted in front of a home for sale.

This week's housing numbers weren't a good sign for the market, but there's hope a slowing of interest rate hikes could breathe life back into the sector. Mario Tama/Getty Images

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This week, we got the latest snapshot on the housing market, which for the last year or so, has been slumping.

New home sales rose in December compared to November, but are still down significantly since peaking last December. Sales of existing homes, building starts and permits, have also fallen in the past year. However, there may be some light emerging at the end of the housing-slump tunnel.

Soaring interest rates last year really put a crimp on housing. Potential buyers pulled out of the market as the rate on the 30-year fixed-rate mortgage more than doubled and peaked around 7% back in November.

But mortgage rates have now fallen back to just above 6%. Economist Robert Dietz at the National Association of Home Builders expects rates to fall further this year—which he says will boost confidence among builders.

Meanwhile, home prices have plateaued and are now declining in some markets. “That is going to price-in a lot of homebuyers, particularly frustrated first-time buyers,” Dietz said.

Persistent strong demand for housing convinces analyst Jay Hatfield at Infrastructure Capital Advisors that the current economic slowdown won’t be very severe.

“We’re pretty bullish that the U.S. will stay out of recession, primarily because we have a resilient housing sector and a shortage of housing,” Hatfield said.

The National Association of Home Builders estimates the U.S. is short 1.5 million new homes to meet current demand.

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