Home News The housing market is slowing. It’s time for homeowners to sit tight.

The housing market is slowing. It’s time for homeowners to sit tight.

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Sorry if this is breaking news, but if you own your home, it’s probably not worth as much as you think. House prices are falling as painfully high inflation is contained.

For most homeowners, this isn’t a big financial deal – unless they plan to sell their home soon.

This is a dramatic turnaround. Just recently, last summer’s housing was in tears. Nationwide, home prices have surged more than 40% since the pandemic first hit. Prices didn’t rise much here in the Philadelphia area. Still, it increased significantly to nearly 25%. Only a few times in history have housing prices risen so rapidly.

But the housing market has changed. Prices are falling. Most places, including Philadelphia, are down just a few percentage points, but there’s no doubt there’s more to come.

Soaring mortgage rates are weakening housing demand and home prices. Aggressive Fed rate hikes have brought the average interest rate on 30-year fixed-rate loans to nearly 7%, the highest in 20 years from about 3% a year ago.

These high mortgage rates, mixed with historically high home prices, have crushed affordability. A year ago, the same family who bought the same house were able to take out a $1,100 monthly mortgage. Most renters who want to become homeowners have no prayers. They simply don’t have the take-home pay to make those payments.

Also, it doesn’t make financial sense for most existing homeowners to move to another home. Many homeowners took advantage of rock-bottom rates when they became available and refinanced their homes with interest rates around 3.5%. If the family sold their current home and got a new mortgage, the interest rate would be double hers.

In addition to declining demand for homes, some home investors have stopped buying. Large institutional investors who were plucking land to rent out their homes know they can make better deals if they sit still.And a flipper who buys a house with the intention of selling it quickly and making a fortune escaped from the market.

Home prices bounce back surprisingly quickly. Home sellers usually take a while to get their asking prices down. This is because, psychologically, they don’t want to give up the highest Zillow price they’ve seen for their home. They usually pull the house off the market and wait for things to turn around. Not this time. Some homeowners are caving. They understand that potential buyers can’t afford to pay list prices, and they know that these prices are unlikely to go down any time soon, unlike when prices have gone up in the past.

If mortgage rates stay where they were by this time next year and the economy avoids a recession, house prices across the country are likely to fall about 10% from peak to trough. Most declines happen sooner or later, but prices don’t start to really start to rise until mid-2010, and even a slight recession will see home prices fall by nearly 20%.

Inevitably, a 20% drop in prices would only bring back half of the price gains during the pandemic. And this first half of his decade will still continue to rise at a 4% annual rate. Not bad, considering it coincides with an increase in household income.

Fears that house prices will crash, as they did during the 2007-2009 financial crisis, are overblown. This can happen if there are a lot of foreclosures or bad sales at deep discounts. But since that crisis has passed, most homebuyers have high credit scores and they’re taking advantage of his 30-year fixed-rate loans in mediocre vanilla. crash.

We can also take comfort in the fact that Philadelphia area house prices remain higher than most other places. is because housing is much more affordable. Affordability is a big issue here, but even worse in many other parts of the country.

That said, the upcoming decline in home prices, especially in combination with the decline in stock prices, is not encouraging. We may not have been as wealthy as we thought, but we are much less wealthy than he was a year ago.

Mark Zandi is Chief Economist at Moody’s Analytics.

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