We’re entering the next stage of the housing market downturn—3 things to expect heading forward

“I would say if you’re a home buyer, someone or a young person looking to buy a home, you need some restore. We need to get back to a place where supply and demand are back together and inflation is back down and mortgage rates are back down,” Powell told reporters.

Whenever a central bank moves from monetary easing to monetary tightening, there will be an impact on a rate-sensitive sector such as real estate. That impact, of course, will be even greater when monetary tightening comes after the asset class, residential real estate, has surged 43% in just over two years. Powell admitted this in June. However, Powell did not commit to whether the rate shock would lower housing prices.

Fast forward to September and we no longer have to wonder if the housing “reset” will affect home prices. In June, the US housing market was still in the early stages of a sharp decline in housing activity. Since then, we’ve seen housing activity, including home sales and home building levels, fall sharply. But as the August data comes in, we now have clear evidence that the downturn in the housing market has moved beyond this first stage (i.e., a sharp decline in housing activity housing) and towards the second (that is, the fall in housing prices).

“The longer it is [mortgage] rates remain high, our view is that housing will continue to be high and will have this reset mode. And the accessibility reset mechanism that needs to happen right now is on [home] prices. And so there are many markets across the country where we expect home prices to fall by double digits,” explains Rick Palacios Jr., head of research at John Burns Real Estate Consulting. the fortune.

Let’s take a closer look at the three elements that will change as we move into the second stage of the housing market downturn.

1. The housing price correction is spreading.

As mortgage rates rose from 3.2% to 6.3% this year, industry experts knew it would cause a sharp contraction in housing activity. However, many housing bulls thought it would not lower prices. In March, Zillow went so far as to predict another 17.8% jump in home prices over the next year.

It’s clear that the housing bulls got it wrong. Among the 148 regional housing markets tracked by John Burns Real Estate Consulting, 98 housing markets have seen home values ​​fall since their peaks in 2022. Only 50 markets remain at their peak.

In 11 markets, the Burns Home Value* Index is already down more than 5%. This includes an 8.2% drop in San Francisco home values. While it’s common for median list prices to drop this time of year, it’s not common for home values ​​or “comps” to drop due to seasonality. Simply put: the house price correction is sharper—and more widespread—than thought.

A growing chorus of research firms, including Moody’s Analytics, John Burns Real Estate Consulting, Zonda and Zelman & Associates, expect this home price correction to continue into 2023. Moody’s Analytics believes that house prices houses in the US could soon fall 5. %. In significantly “overvalued” housing markets, Moody’s Analytics believes price declines could range from 5% to 10%. If a recession manifests, Moody’s Analytics predicts that these price declines will double. But even that scenario would still fall short of the 27% high-to-low decline in U.S. home prices we saw between 2006 and 2012.

There are still some companies that don’t believe the home price correction, driven by a squeeze on affordability created by rising mortgage rates, will last into 2023. That includes Zillow. The Seattle-based home listing site acknowledges that 62% of housing markets should see home values ​​decline in the third quarter of 2022. However, Zillow economists predict that only 28.5% of markets are headed for year-over-year declines between August 2022 and 2022. August 2023.

2. The housing slump will soon extend beyond housing.

Year-over-year, the decline in housing has caused new and existing home sales to fall by 29.6% and 20.2%. Real estate firms like Redfin, Realtor.com and Compass have already issued layoffs. Homebuilders are canceling projects, while some mortgage lenders are in bankruptcy.

That said, most of the financial pain from the housing slump has been contained within the real estate sector. That’s about to change.

Goldman Sachs researchers recently published a paper titled “The Housing Downturn: Further to Fall.” The investment bank predicts that US housing GDP will fall 8.9% in 2022 and another 9.2% in 2023. In the run-up to the Great Recession—which officially began in December of 2007— housing GDP fell 7.4% in 2006 and 21.4%. in 2007.

If Goldman Sachs is right, it will mean contractions in the US housing market will soon spread to the wider economy. This is not surprising. After all, the Federal Reserve has raised the Federal Funds rate in an attempt to slow down the economy.

As homebuyers across the country put their house searches on hold, it’s causing homebuilders to pull back. This means a decrease in demand for things like refrigerators, lumber, windows, and paint. In theory, these economic contractions should help curb runaway inflation.

“This [housing] it’s not the goal, it’s him [housing] is essentially the goal,” said Bill McBride, author of the economics blog Calculated Risk the fortune earlier this summer.

3. Salespeople are calling the timeout.

As the pandemic housing boom faded this summer, we saw a jump in inventory across the country. In bubble markets like Austin and Boise, that jump in inventory was more than 300% between March and August.

But that inventory surge is already fading.

Active listings on Realtor.com increased by 106,900 homes in May. It was followed by 102,900 and 128,200 jumps in June and July. However, that slowed in August to just an inventory jump of 31,900. And for the rest of the year, Altos Research predicts that inventory will actually fall.

What is happening? For starters, sellers have realized that buyers are done paying top dollar. Instead of taking less, some sellers simply wait out the housing slump.

There is also the tariff blocking effect. The vast majority of outstanding mortgages have rates below 5%, with a large proportion even below 3%. If they sell now, they would give up their historically low mortgage rate. This pay jump is hardly attractive to shoppers on the move.

“It’s going to be very, very difficult to persuade people to let go of these incredibly low rates,” says Palacios. the fortune. While many industry experts believe tight inventory will help prevent a housing crash, Palacios says it won’t be enough to prevent a home price correction.

Want to keep up with the housing slump? Follow me on Twitter at @Lambert News.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *