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Home prices are finally falling. But how low will they go?

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The US housing market is undergoing a major transformation. After his two years of stratospheric price increases, house prices have peaked and are trending downward again.

But what homebuyers and homeowners want to know is how much the price will go down.

Simply put, prices could fall further, but not as much as during the housing crash. From the 2006 peak to the 2012 trough, home prices nationwide fell 27%, according to the S&P CoreLogic Case-Shiller Indices, which measure US house prices.

“The situation was different in 2008 and 2009 because the price decline was due to pressure from sellers,” said Jeff Tucker, senior economist at Zillow. “There were a lot of very ambitious sellers willing to lose their homes to foreclosures and short sales.”

Moreover, the housing crash occurred at a time when the inventory of homes for sale was four times what it is today. Current inventories are significantly lower than pre-pandemic levels, increasing competition for housing. And that’s what keeps the price relatively strong.

“I would be surprised if prices were below 2019 levels,” Mr. Tucker said. “Between 2021 and this spring, the housing market has overheated somewhat, pushing prices higher than the fundamentals support. Now they are coming down.”

As mortgage rates have more than doubled since the beginning of the year, homebuyers’ calculations have changed significantly. Monthly principal and interest mortgage payments for the median home are up $930 from a year ago, a 73% increase, according to mortgage data company Black Knight.

Buying a home is now more affordable than it was decades ago, according to Black Knight, given soaring mortgage rates, rising home prices and slowing wage growth. That’s what I mean.

But there may be some relief for buyers.

economist goldman sachs House prices are expected to fall by around 5% to 10% from their peak in June.

Wells Fargo recently forecast that median single-family home prices will fall 5.5% year-over-year by the end of 2023.

Wells Fargo economists estimate that the median price of existing single-family homes will rise 7.8% from last year to $385,000 this year, but that growth is up from 19% year-on-year in 2021. It will be much smaller than the rise.

Economists expect median home prices to drop to $364,000, down 5.5% from this year. They predict that the price will recover and rise again in 2024, with the median he rising 3.3% to 376,000 by the end of 2024.

A Wells Fargo researcher wrote, “The main driver of the housing market correction so far has been a sharp rise in mortgage rates.” “If our forecast of a Fed rate cut comes true, mortgage rates could fall slightly, just as lower inflationary pressures support real income growth. Improvements will continue and house price gains will reignite into 2024.”

Ultimately, how much the price will drop depends on where you live.

Tucker said the cooling would be more localized, unlike price increases during the pandemic, when home prices surged in markets across the country. You will feel it deeply. Many of them are in the West and Sun Belt, including cities like Austin, Phoenix and Boise, he said.

“Nationally, we might see a 5% decline from the peak,” Tucker said. “But prices will fall further in the West and less in the Southeast.”

In September, house prices fell 2.3% month-on-month in several pandemic hotspots, including Phoenix. Zillow said Las Vegas was down 1.9% and Austin was down nearly 1%.

And Boise, Idaho, where prices rose nearly 60% during the pandemic, is already seeing its yearly decline, with prices falling 3.9% year-over-year in September, according to Zillow.

“Many metropolitan areas, especially in the West, will see year-over-year price declines this spring,” said Tucker. “It’s going to be the worst time of comparison because it’s when many markets have peaked.”

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