Home News 20% Downside for Home Prices in 2023, KPMG Says

20% Downside for Home Prices in 2023, KPMG Says

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  • KPMG economist Yelena Maleev says house prices could fall by 20% in 2023.
  • Prices have already fallen 4% from June to October 2022, and a 20% drop is relatively high.
  • Boise, Phoenix, San Francisco, and Los Angeles will see significant declines, Maleev predicts.

House prices have started to come under pressure over the past few months, falling by about 4% from June to October 2022. S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index.

according to KPMG The downtrend may be just beginning, according to economist Yelena Maleev. Maleev, whose focus is on the housing market, told Insider last week that she believes home prices in the United States could fall as much as 20 percent. . KPMG Chief Economist Diane Swonk Outlook commentary for 2023.

Maleev’s call is underpinned by market volatility caused by rising mortgage rates. Home prices hit record highs last year, while mortgage rates more than doubled his, leading to a significant drop in demand.of Average 30-year fixed mortgage The rate is now well over 6%.

Sale of existing homes

Morgan Stanley

This is starting to show up in lagging home price and existing home sales data, but Maleev said it’s also showing up in leading indicators.

“We’re definitely keeping an eye on the existing housing market, but the new homebuilding market is a market that’s a bit more of a leading indicator,” she said. , cancellations are not recorded in that data, and the data for the past few months have been revised downwards, so caution is advised.”

Maleev also said the market was underestimating the Federal Reserve’s determination to fight inflation. The Federal Reserve has said it will continue to raise interest rates at the terminal rate (projected at 5.25%) through 2023, but markets are now pricing in a pivot to adopt a dovish policy from the central bank in the third quarter. I’m in.

Mortgage rates tend to follow the 10-year Treasury rate, which is influenced by Fed policy. This is because a typical 30-year mortgage will be refinanced or canceled after about 12 years as the home is sold.

If mortgage rates remain at current levels, as Maleev predicts, home prices will continue to fall as buyer demand continues to slow. Demand has already been satirized by historically low affordability.

Maleev warned that the Fed’s turnaround psychology “could undermine everything the Fed has been working on.” “Inflation is falling. It’s true, but it’s far from where it should be,” he said.

She continued, “If markets and consumers try to undo what they’ve been doing to fight inflation, that means a new spur of inflation early and mid-year. Reserve Board, that means more monetary tightening, which means mortgage rates will rise further.”

Maleev’s outlook may sound daunting to gaming enthusiasts, but a 20% drop isn’t as bad as you might think given the past few years. she emphasized.

“Even if national house prices were to fall 20% by the end of 2023, we would still be at home price levels around December 2020,” she said. Not all housing values ​​are lost.”

Maleev said the western region of the United States will lead the decline in prices, as many cities saw the biggest price increases since the pandemic began.

“In Boise, Idaho and Phoenix, Arizona, home prices are up 60-70% year-over-year, but consumers are starting to realize that more sales aren’t actually outpacing listings. So it will come back to reality,” Maleev said.

She also named San Francisco and Los Angeles as cities that will see a bigger decline.

Meanwhile, the Midwest and Northeast are more stable, she said. The Texas and Florida markets will also see further declines in home prices due to migration to those states, she said.

A 20% decline in 2023 is on the high side of projections.Goldman Sachs said earlier this month they expected house prices fall It will drop another 6% in 2023, but Morgan Stanley expects a decline of about 4%.

According to the S&P CoreLogic Case-Shiller index, national home prices fell about 27% during the 2000s housing crisis.

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