Home News The Fed admits a sharp home price decline is possible

The Fed admits a sharp home price decline is possible

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But Powell hasn’t touched the elephant in the room yet: Will US house prices fall?

Fast forward to this week and we’ve been able to get a better sense of the central bank’s view on house prices. Fed President Christopher Waller told an audience at the University of Kentucky. We could see a “significant” decline in US home prices.

“The other day [housing] While the market correction may be fairly mild, we cannot rule out the possibility that demand and home prices will fall significantly before the market normalizes.

This is the first time a Fed official has admitted it Housing adjustments in progress House prices could fall nationally.Waller also admitted Correction of house prices It can be more than a small tickdown.It could be ‘ingredients,’ he says [home price] Fix. ”

“Despite the risks material correction As for house prices, several factors help alleviate my concern that such adjustments could trigger a wave of mortgage defaults and destabilize the financial system. For one, mortgage underwriting was relatively tight in the 2010s, so credit scores for mortgage borrowers today are generally higher than they were before the last housing adjustment. Experience has shown that most borrowers only default when they experience a negative income shock in addition to being behind on their mortgages.”

Reading between the lines, it looks like Waller is making four points. 1. The housing market correction may be “gentle”. 2. There are scenarios where the housing market correction is not gradual 3. There is the possibility of a significant decline in house prices. 4. A sharp drop in house prices will not trigger a wave of foreclosures or a financial collapse like 2008.

Of course, the Fed acknowledged that house prices could fall only after they had already begun to fall in many markets. Among 148 major regional housing markets tracked by John Burns Real Estate Consulting, 98 markets have seen home prices fall from their 2022 peak. in 11 markets, Barnes Home Value Index It has already decreased by more than 5%.

“Prices have fallen in some parts of the country, particularly those that have seen the biggest gains in the last two years, and many builders are reportedly lowering list prices and offering greater incentives. We are,” Waller told the audience.

So far, housing adjustments have Soaring mortgage rates— It hits one of the two markets hardest.

The first group is high-cost technology hubs. This includes markets such as San Francisco (down 7.8% from its 2022 peak), San Jose (down 9%) and Seattle (down 6.2%). As well as the high-end real estate market, the technology sector is also sensitive to interest rates.

the other group merry market Austin (down 6.2%), Boise (down 5.3%) and Phoenix (down 4.4%).Between pandemic housing boomin these vibrant markets, house prices have reached levels well above what local incomes have historically supported. According to Moody’s Analytics, Austin and Phoenix are overrated by 61% and 57%, respectively. Historically, significantly “overvalued” housing markets are the most vulnerable to housing price cuts during housing adjustments.

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