Home News Housing market slump continues. What does that mean for home prices?

Housing market slump continues. What does that mean for home prices?

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As The Federal Reserve Continues to War record high inflation Rising interest rates are likely to continue At least for the next year or more, the U.S. housing market slump isn’t going away any time soon.

The impact of mortgage rates soaring above 5% — and More than 6% these days — It was blazingly fast. The impact on home prices is still early, but how dramatic the impact will be will depend on the local market.

“There are actually a lot of pockets of the country that have survived this relatively well, and there are pockets that have not.”

That’s what Rick Palacios Jr., Research Director and Managing Principal at John Burns Real Estate Consulting, told Fortune Magazine’s Lance Lambert during a live show on Friday. Twitter space conversation Focuses on recent US housing market conditions.

Where are house prices falling?

Palacios recently wrote a commentary article for Fortune, also published on Friday. A ‘quick exit’ from today’s housing slump is ‘unlikely’ Meanwhile, preliminary estimates from the Burns Home Value Index through August 2022 report that 98 major regional markets across the country have already seen home prices fall.

“There are markets where house prices are already falling,” Palacios said, adding that even if year-over-year house price growth remains positive, monthly data are needed to understand the “slowdown” that’s happening now. He pointed out that it is necessary to pay attention to

According to that analysis, the West Coast is dotted with red. San Jose and San Francisco, California, both experienced a -8.2% shift in house prices from their peaks. Seattle decreased 7.8%. Reno, Nevada, fell 5.3%. Phoenix, Arizona is down 5%.

“Our view and outlook is that it will continue for the foreseeable future,” Palacios said. “The phrase that housing needs a ‘reset’ that the Federal Reserve has been using for the last few months is a kind of euphemism for ‘house prices need to come down.’ is exactly what is happening right now.”

Newly developed homes near Utah Lake in Saratoga Springs, Monday, August 22, 2022.

Ben B. Brown, Deseret News

Inventory is still relatively low. So why are prices falling?

Historically, when the housing market “rolls over,” it usually takes some time before house prices actually fall, Lambert said. “So why is he already seeing it in two-thirds of the national market?” he asked.

Palacios said the key here is that nationwide affordability is “at or near the worst ever.” And when mortgage rates soar from his under 3% in late 2020 to “playing with 6%” now, it simply means many Americans will lose their mortgage eligibility. It has become.

Another key to the conversation, Palacios said, is that high mortgage rates are also having a dramatic impact on demand, even though inventories are still relatively low. , not only will prospective buyers drop in price, but homeowners who buy or refinance during this “once-in-a-generation financing window” are “trapped.”

“Consider that 85% of outstanding mortgages are pegged at interest rates below 5%, 24% remain at an attractively low level of less than 3%. I hope I can convince someone to give up a fixed rate mortgage under 3% or even 4% at a time when inflation is at his 40-year high and the cost of everything is very precarious.” writes Palacios.

He also cited a recent study, noting that 64% of existing homeowners would not buy again if mortgage rates were above 5%. New Home Trend InstituteWhen the rate exceeds 6%, that percentage jumps to 85%. Given that existing homeowners make up 51% of all home purchases and the overwhelming majority need a mortgage, according to the National Association of Realtors, “obstacles to their homebuying activity are a major factor in the overall housing transaction. It has a big impact,” Palacios wrote.

Using these figures, Palacios found that 33% of home deals “could disappear rapidly in the near term. With mortgage rates above 6%, a staggering 43% of home purchases could disappear. “These percentages are alarming and may reflect the backdrop of today’s terrible selling prices, which continues to be the worst in history.”

Therefore, Palacios predicts: And I think it’s very interesting and it’s starting to surprise a lot of people. ”

Housing market forecast for 2023 and 2024

So what’s ahead? It depends who you ask.nevertheless Goldman Sachs predicts the market will deteriorate in 2023the banking giant still forecasts that overall U.S. house prices will rise slightly by 1.8% in 2023. Fortune ReportSo do companies such as Zelman & Associates, headed by Ivy Zelman. Analysts called 2005 the top of the housing market and the subsequent bubble burst.

Zelman’s model predicts that US house prices will not only fall 4% not only in 2023, but will also fall another 5% in 2024. But that depends on the local market, she said recently. Macro Hive Conversations Podcast.

“The risk of stocks plummeting and seeing significant price corrections as quickly as inventories rise and demand rises. But that will vary by market,” Zelman said. “And I don’t think it’s going to end anytime soon. It will be different.”

What does this mean for western Utah?

What’s the short answer? It depends on the market. Take Phoenix for example. It’s what Palacios called the “poster child” of the pandemic housing boom effect. Subway saw an explosion of buyers, investors and construction from mid-2020 until rising mortgage rates dampened the party.

That market, along with other “cheerful” pandemic-mad markets in the West like Boise, Idaho, was the first to see a dramatic pullback in housing market activity and an early slump in prices. New home prices in Phoenix are already down 3.5% year-over-year, wiping out all price gains dating back to last summer, Lambert said.

last month, Boise leads the country with the largest share of sellers who have lowered prices, nearly 70% of homes for sale see price drops in July. Denver was next with 58%. Salt Lake City ranked him third with 56.4%.

But what about Utah? The fast-growing state, which was already dealing with a housing shortage before the pandemic hit, boasts one of the strongest job economies in the country.

Home prices began to fall for the first time in June — the Salt Lake Chamber of Commerce Home prices are finally starting to stabilize After two years of madness. His Dejan Eskic, a senior fellow at the University of Utah’s Kem C. Gardner Institute and one of Utah’s leading housing experts, has been plagued by home buyers for more than two years. He said it was actually welcome news in the market.

But on Friday, in another interview with Deseret News, Eskic was less optimistic about the state of play.

Utah still faces a stubborn housing shortage, inventory continues to rise, and many Utahans want to buy a home, but today’s high mortgage rates are hurting demand. .

“We have definitely slowed down. Interest rates are very volatile, so our prices are starting to fall,” Eskic said.

After hearing a recent Fed meeting, Eskich said he was “probably not optimistic” because “it looks like they’re shooting for housing right now.” With interest rates hovering around 6%. As a result, prices for a dramatic number of Utahans have fallen, putting pressure on home builders.

Since Utah’s home prices peaked in May, home prices are down about 6% in August, but “we’re still up 10% year-over-year,” Eskic said. .

Still, given Utah’s growing population, economic conditions, job market and housing shortage, Eskic doesn’t foresee a “dramatic drop” in housing prices equating to a crash.

However, demand has been subdued for the same reasons Palacios described, such as the “lockup” effect. In Utah, about a third of existing mortgages statewide are priced at interest rates below his 3%, and 45% of his mortgages are at interest rates below his 3% to his 4%. He said it was set to According to about 14% he is between 4% and 5%. FHFA National Mortgage Database.

“That means that 80% of Utah mortgages have less than 4% interest,” says Eskic. This will have a significant impact on Utah’s housing market activity as long as interest rates stay above his 4%. In particular, consider projections that indicate that mortgages are unlikely to fall for at least the next two years.

So what does this mean for the Utah housing market as a whole?

“Affordability is still an issue,” he said. “The only reason house prices are falling is because of interest rates.”

While it’s easier to bid on homes from a competitive standpoint compared to the wild market of 2020, 2021 and early 2022, high prices still keep many Utahans from buying a home. And with volatile mortgage interest rates, you can afford it.

Prices are starting to fall, but Eskich said, “I don’t think it’s enough yet to bring some equilibrium to affordability.”

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