U.S. house prices have finally fallen from their record highs earlier this year and could plunge further in the coming months as the Federal Reserve steps up its fight against inflation. .
Prices have already recorded their biggest monthly drop since the 2009 housing crash, according to a new release from Black Knight Data & Analytics. Median house prices fell 0.98% month-on-month in August, following a 1.05% drop in July. Overall, median home prices are down 2% from his June peak.
Black Knight President Ben Graboske said:
Recent Key Outlook wall street Companies suggest that this is just the beginning of a sharp plunge in US house prices.
Morgan Stanley expects house prices to fall another 7% by the end of 2023. While this is smaller than her 27% drop seen when her mortgage bubble burst more than a decade ago, it still marks the second fastest decline since the Great Depression. .
Investment banks have blamed a steep rise in mortgage rates for the expected decline.
Mortgage rates have more than doubled to 6.29% and are likely to rise further, according to recent data from mortgage lender Freddie Mac, with some forecasters predicting interest rates could rise to 7%. I expect. And while home price gains have slowed this past month, prices are well above their levels just a year ago, making affordability within reach for many prospective buyers. It has become nothing.
A Morgan Stanley researcher said, “Assuming a 7% mortgage rate, affordability would appear to be significantly worse than it is today, and the pace of that slowdown has been consistent with nearly all of history. It has already more than doubled since then,” he wrote.
of federal reserve An aggressive plan to raise interest rates in an attempt to stifle runaway inflation has sent the once-red-hot housing sector into the midst of a serious correction.
The US central bank raised its benchmark rate by 75 basis points for the third straight month in September, following similar rate hikes in June and July. This is the most aggressive series of rate hikes since 1994. It ranges from 3% to 3.25%, the highest since the 2008 financial crisis. It’s also his fifth consecutive price increase this year.
In addition to the significant rate hikes, Fed officials have signaled an aggressive rate hike policy for the rest of the year. Recent economic forecasts show policymakers expecting interest rates to reach 4.4% by the end of the year, suggesting a further three-quarters percentage point increase is under consideration.
Meanwhile, a Goldman Sachs strategist We estimate that the recent market downturn could lead to a 5% to 10% decline in home prices.
“House prices appear to be falling even though inventory levels are historically fairly low (due to inventory and months of supply),” the bank said.
Moody’s Chief Economist Mark Zandy also sees house prices falling 5% to 10% from peak to trough, even if the economy avoids a recession. But if the economy hits a recession, Zandi is optimistic that the sector can avoid a crash like his in 2008, although that drop would be even steeper, he said, from 10% to 15%. I expect it to be.
Fed Chairman Jerome Powell has warned that the housing market is likely to suffer from rate hikes by policymakers.
“There have been periods of overheating in housing markets across the country,” Powell said in September. It should, and that’s a good thing.”