Home Prices Dropping – As an interactive chart suggests, the possibility of falling home prices will affect the local housing market.
Fed Chairman Jerome Powell has made it clear: The central bank is sitting on the sidelines as inflation falls on the dollar. The plan? Push up interest rates until inflation picks up.
Home Prices Dropping
Historically, that inflation handbook has been especially difficult in the housing market, where it can quickly adjust for homebuyers. That is already happening. On Thursday, the average 30-year fixed mortgage rate reached 5.11%, compared to 3.11% in December. A borrower taking out a $500,000 loan at 3.11% owes $2,138 a month. At a rate of 5.11%, the monthly payment on the 30-year loan comes to $2,718.
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Although rising mortgage rates are putting downward pressure on the housing market, that doesn’t mean home prices are about to fall. In fact, the forecasting model of every major real estate firm, including Fannie Mae and Zillow, still predicts that home prices will rise even more this year.
Economic shocks caused by rising mortgage rates are increasing the likelihood that home values will fall in some expensive housing markets.
It came to CoreLogic. A California-based real estate research firm provided us with an assessment of nearly 400 metropolitan statistical areas.
CoreLogic, at No. 952 out of 1,000, placed housing markets in one of five categories where home prices in that particular market are likely to fall over the next 12 months. Here are the groups:
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CoreLogic ranked 86 percent of the 392 regional housing markets it measured as “very low” or “low.” He placed 10% of the markets in the “medium” group and 1% in the “high” group. Meanwhile, CoreLogic puts the markets at just 2% in the “top” bracket. Markets in the top category – the most likely price adjustment – Hartford; Calamazu; Lewiston, Maine; Mount Vernon, Washington; Muskegon, Michigan; Olympia, Washington; Salem, Oregon; and Honolulu.
Even with rising mortgage rates, CoreLogic still thinks the likelihood of rate cuts in 2022 is very low. why? A real estate research firm indicates a mismatch between inventory and strong buyer demand. That is also reflected in the national forecast. Over the next 12 months, CoreLogic predicts that US home prices will rise by 5%. That represents a slowdown from the 19.8% jump recorded over the past 12 months, but relief prices are not what buyers are looking for.
CoreLogic also calculates whether local income levels can support local housing prices. The discovery? CoreLogic says 65% of US regional real estate markets USA they are “overrated”. This includes all major markets in states like Arizona, Florida, and Texas. 9% of the state’s real estate markets are what CoreLogic considers “below affordable.” 26% get the “normal” label.
In 2020, the real estate market began to expand shortly after the release of strict COVID-19 lockdowns. Economists at the time weren’t worried. In their eyes, the demographic wave of first-time millennial homebuyers, work-from-home buyers and low mortgage rates have supported price increases. But in recent months, his tune has changed. Just last month, researchers at the Federal Reserve Bank of Dallas released a paper warning of a potential housing bubble. Meanwhile, real estate economist George Ratieu said last week: “We’re not in a real estate bubble yet, but if prices keep going up at the current rate, we’re going into one.”
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Industry experts are working to push mortgage rates higher to keep up with surging home price growth. That includes Logan Mohtashami, HousingWire’s lead analyst. He wants to see rising mortgage rates cause some homebuyers to put their search on hold. If that happens, inventory could finally get some much-needed breathing room back. We’re in a historically expensive housing market, and these cities could see home prices drop by 10%, Moody’s said.
A housing market downturn seemed certain two years ago. At the time, it made sense: Strict government-mandated lockdowns had pushed the U.S. unemployment rate to its highest level since the Great Depression, and many states had banned physical indoor displays. However, the housing compost did not arrive. Both Congress and the Federal Reserve stepped in with unprecedented economic aid, and after two months of recession, the U.S. economy and housing market rebounded.
But the continued housing boom, which has driven home prices up 34% over the past two years, may soon subside. At least that’s according to Mark Zandi, chief economist at Moody’s Analytics.
The Federal Reserve has a dual mandate from Congress: to maintain maximum employment and to maintain price stability. Of course, with inflation at a 40-year high, there’s no doubt that the Fed’s duties are currently high on its priority list. Zandi says the Fed’s fight against inflation has big implications for the US housing market. In the past, the Federal Reserve has been putting upward pressure on mortgage rates to revive price growth in the housing market and the economy at large. In fact, over the past two months, the average 30-year fixed mortgage rate has gone from 3.11% to 5.1%.
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That rapid rise in mortgage rates represents an economic shock to the red-hot housing market. We are already starting to see the market soften a bit. In the coming months, Zandi says the cold should intensify. This time next year, year-on-year house price growth is expected to be zero.
At this time, Zandi does not foresee a national house price adjustment. However, some of the most expensive housing markets in the country believe that house prices could fall by 10% in the next year.
He asked Moody’s Analytics for a proprietary analysis of the US housing market. The company aims to determine whether local income levels can support local house prices. The discovery? About 96% of the 392 metropolitan statistical areas surveyed are “overrated.” 149 out of 392 markets are overvalued by at least 25%. It’s expensive Boise, housing prices are 73% above basic. Since Boise is “overrated” in terms of local income, it’s no wonder Californians flocked to shop there during the pandemic.
Over time, regional housing markets may not remain “excessive” at this level, Zandi says. This should be a drag on future house price growth.
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“In terms of house prices, I expect [growth] to be flat… There will be markets where we will see a 5% to 10% drop in prices,” Zandi says. While he doesn’t see it as a housing bubble that calls for price speculation and speculation in the market, including places like Phoenix and Charlotte, he said “speculation is being introduced.” According to Moody’s Analytics, Phoenix and Charlotte are overvalued by 46% and 33%, respectively.
Moody’s Analytics isn’t the only company calling this an overhyped housing market. CoreLogic, a California-based real estate research firm, provided the analysis
Last month, 65 percent of regional housing markets were overvalued. Meanwhile, an analysis by Black Knight, a provider of mortgage technology and data, found that the average American household would need to spend 31% of their monthly income to pay a mortgage on the average American home. This is the highest reading for the Black Knight’s mortgage payment to income ratio since 2007.
While CoreLogic and Moody’s Analytics agree that the housing market is overvalued, CoreLogic is not so bearish. According to the real estate research firm, housing markets have just a 3 percent “high” or “high” chance of seeing home prices fall in the next year. Nationally, CoreLogic expects house price growth to increase another 5% over the next 12 months. This represents a slowdown from the most recent 12-month house price jump (19.8%). However, it may not be the relief homebuyers are looking for.
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“New listings have not been matched by the large number of families looking to buy, meaning homes are selling quickly and often for more than they’re worth. This has created an imbalance between an insufficient number of home owners wanting to sell to relatives of buyers looking for a home. The past 12 months have appreciated,” said Frank Nothaft, chief economist at CoreLogic. In a report published last month, they wrote: “Higher prices and higher mortgage rates will erode buyer power and dampen demand in the coming years. months, prompting our forecast to moderate price growth.”
As mentioned above, it may be best to take all housing forecasts with a grain of salt. After all, when the fallout from Covid-19 hit in the spring of 2020, housing forecast models published by Zillow and CoreLogic predicted that US home prices would decline in the spring of 2021. It didn’t happen. Instead, the housing market has rebounded. Across the country, builders and agents are looking at the U.S. housing market — which sold at mortgage rates around 3% — working toward a balance in terms of mortgage rates at 7%.
Unlike the stock market, which corrects with price movements, housing corrections have historically been characterized by a decline in real estate activity. That’s why rising mortgage rates are translating into a sharp drop in existing and new home sales.
That said, it’s getting clearer
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