U.S. home prices fell 2.2% between June 2022 and September 2022. That ties to the second biggest home price correction of the post-World War II era. The housing market is currently under pressure from a number of factors, including the drop in inventory, the increase in home prices, and the increase in mortgage rates. About four in five consumers now describe buying conditions for homes as bad, a record in data going back to 1978, according to the University of Michigan’s consumer sentiment survey for November. The number of people who attribute the erosion in conditions to higher interest rates is at the highest level in 40 years, figures showed Friday. Nationwide, housing affordability is the worst on record, according to the Atlanta Fed data.
Due to the significant increase in mortgage rates, which have more than doubled this year as the Federal Reserve raises interest rates, buyer demand has collapsed. The average monthly payment on a long-term mortgage is now 40% more expensive than it was at this time last year. It is more difficult for prospective buyers to get affordable housing because mortgage rates are still more than double what they were the first week of 2022 and home prices are more than 6% higher. About 270,000 homebuyers who bought during the red-hot housing market this year already owe more than their house is worth.
The overall housing supply in the United States remains limited, as those who bought homes in recent years at extremely low mortgage rates are staying put. This scarcity of inventory has kept prices from falling further, leaving homes unaffordable for many people, particularly first-time homebuyers.
On average, 2% of homes for sale were delisted without being sold each week during the three months that ended Nov. 20, Redfin said. That compares to 1.6% a year earlier and is yet another sign that the decade-long housing boom is over.
According to Standard & Poor's CoreLogic Case-Shiller Home Price Index, existing home prices increased by 45 percent between December 2019 and June 2022, from the beginning of the epidemic to the summer price peak, the greatest increase ever seen in such a short period of time. According to Moody's Analytics, the average U.S. housing market was "overvalued" by 1% in the second quarter of 2019. Through the second quarter of 2022, the average U.S. housing market was "overvalued" by around 25%.
America's home prices could plunge as much as 20% due to the sharp rise in mortgage rates in 2022, which are drastically increasing home ownership costs and "boost the odds of a severe house price correction," according to research from the Federal Reserve Bank of Dallas.
The Federal Reserve suggested on Friday that lofty home prices could be susceptible to steep declines after big run-ups in recent years on the back of ultra-low interest rates. “With valuations at high levels, house prices could be particularly sensitive to shocks,” the Fed said in its semiannual Financial Stability Report released Friday.
Morgan Stanley, the investment management firm, predicted home prices will fall 7 percent, from the peak of pricing in June 2022 to December 2023. Moody’s Analytics expects prices to drop 10 percent, from June to the summer of 2024, but if a recession hits, an increasingly likely scenario, prices could drop 20 percent. In some supercharged markets, like Boise and Phoenix, Moody’s predicts prices could drop by more than 30 percent.
"I expect housing prices to fall 10% to 15%, and the housing prices are accelerating on the downside," Siegel told CNBC in a recent interview, noting that housing prices by any indicator are going down. In a separate interview with CNBC, he said: "I think we're gonna have the second-biggest housing price decline since post-WWII period over the next 12 months. That's a very, very significant factor for wealth [and] for equity in the housing market."
"We have a massive housing bubble right now. Most of the household balance sheet is residential real estate, and it is equities," David Rosenberg, veteran economist, and Rosenberg Research chief said in a RealVision interview released this week.
"I think the housing market is on its way into a recession. We're going to see price declines — price declines have already begun to take place," Don Peebles, real estate developer, and Peebles Corp. CEO told Fox News last week. "I look at this as though we have this freight train out of control, speeding up, speeding up with low-interest rates, and no one looked to start slowing it down or stepping on the brakes. Now all of a sudden it’s going to come crashing into the station," he said.
"Home prices in 2023 will be somewhat protected by inventory constraints," said Matthew Gardner at Windermere Real Estate. "Many would-be home sellers will be reluctant to lose the historically low-interest rate that they currently benefit from, and this will limit the national correction."
Mark Zandi from moody analytics doesn't expect a 2008-style financial crisis or foreclosure crisis, but he does expect housing fundamentals to pull back toward the mean. Some of that moderation will come through rising incomes, and some of it will come through falling home prices.
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