Home prices could fall as much as 20% as residential real estate market screeches to a halt

Home prices could fall drastically in the coming months, economists have predicted, as residential real estate continues to grind to a halt due to higher mortgage rates and low inventory.

The forecast comes as existing home sales have fallen for nine straight months – a trend that is likely to persist, data shows, as homebuyers facing rapidly rising prices continue to shy away from the market.  

The October national median home price for all housing types was $379,100. This is almost 7 percent higher than the same month last year.

Regionally, it is the same. The Northeast and South share the largest gains of 8 per cent, while the Midwest, West and West see significant swells at nearly 6 per cent.

In the wake of softer inflation, the 30-year fixed rates reached 6.6 percent. The rate has risen to seven percent, a dramatic increase from 3.1 percent 12 months ago.

Experts now warn a large-scale slowdown is coming, one that will see home prices eventually fall more than a fifth from its recent peak recorded in June, $414,000 –  as unsustainable levels of housing affordability continue to diminish demand.

The October national median home price for all housing types was $379,100. This is almost 7 percent higher than the same month last year. Experts warn of a slowdown in large scale housing affordability as the unsustainable levels of demand continue to decrease.

Regionally, The Situation Is The Same, With The Northeast And South Sharing The Largest Gain Of 8 Percent And The Midwest And West Seeing Still Swells Of Nearly 6 Percent Since Last Year

Regionally, it is similar with Northeast and South seeing the largest gains of 8 per cent and Midwest and West experiencing still small increases of almost 6 per cent since last year. 

According to Kieran Clancy (a senior US economist at Pantheon Macroeconomics, London), “In one line: The collapse in prices is coming.” Axios Interview Monday: Analyzing the latest housing statistics 

'In One Line: Collapse In Prices Is Coming,' Kieran Clancy, A Senior Us Economist At Pantheon Macroeconomics, Said Monday Upon Analyzing The Latest Housing Numbers

After analyzing the most recent housing statistics, Kieran Clancy (a senior US economist at Pantheon Macroeconomics) stated Monday that he saw a collapse in prices.

Clancy’s firm, as well as several others around the world, believe home prices will continue to fall by as much as 20 percent, as more and more homes sit unsold with each month.

Real estate data released This month showed that October’s inventory of unsold listings as of the end of the month fell 0.8 percent from last month, standing at 1,220,000 homes for sale. 

Inventory levels dropped 0.8 percent last year, as rents and home prices recovered from the pandemic. 

According to the National Association of Realtors it will take approximately three months to move current inventory levels at the current pace, which is well below the 6 month target.

Analyst from prominent firms such as Goldman Sachs have since cut their outlook for home prices, from roughly flat next year to down 4 percent, with the big bank recently warning that ‘unsustainable levels of housing affordability to continue weighing on housing demand.’ 

Home Prices Are Growing, But At A Much Slower Annual Rate Than The 20 Percent Seen During The Pandemic. The Fed Is Trying To Deflate The Housing Bubble Without A Sharp Correction

The annual growth in home prices is slower than the 20 percent during the pandemic. Without a sharp correction, the Fed is trying deflate housing bubble.

The Federal Reserve is working tirelessly to end the housing bubble, preferably without an increase in interest rates. 

The bank has been increasing its interest rates aggressively for the past year in an effort to combat inflation. This has slowed it slightly, but seen mortgage rates rise.

The national decline in home sales has also been caused by the maneuvers. This unexpected side effect has led to sales falling 28.4 per cent from October last year.

The unforeseen side effects come as economists had warned the central bank’s strategy carries the risk of sending the economy into a recession, while others dismissed the prospect of a nationwide price slump.

Many people assumed that there would be enough buyers to buy the small number of houses on the market, so prices wouldn’t fall much. 

The Fed Has Issued A Series Of Jumbo Rate Hikes, Which Indirectly Push Mortgage Rates Up

A series of Fed jumbo rate increases have pushed mortgage rates up indirectly.

The data released earlier in this month showed that housing starts (or the beginning of construction for a new home) declined by more than four percent to 1.4 millions units. 

Data from the National Association of Home Builders showed that confidence in single-family homes’ market is at its lowest point in 12 months. This historically signifies an unstable market.

The group stated that it marks eleven months of steadily declining confidence. 

NAHB Chairman Jerry Konter stated in a statement that higher interest rates have significantly reduced demand for new homes, and buyer traffic is becoming more scarce.

Konter also said: ‘With the housing sector in a recession, the Biden administration and new Congress must turn their focus to policies that lower the cost of building and allow the nation’s home builders to expand housing production.’ 

The Maneuvers Have Also Caused A National Plunge In Home Sale Volume, An Unforeseen Side Effect That Has Seen Sales Decline 28 Percent From October Of Last Year. The Side Effects Come As Many Warned The Bank’s Strategy Carries The Risk Of Sending The Economy Into A Recession

The bank’s maneuvers have caused a nationwide plunge in home sales volume. This side effect, which was not expected, has led to sales falling 28 percent over October 2013. The side effects come as many warned the bank’s strategy carries the risk of sending the economy into a recession

 According to Wells Fargo: Approximately 37 percent of homebuilders have reduced prices, while 59 per cent of homebuilders use other methods in order to attract new buyers.

According to the Mortgage Bankers Association, the average fixed rate for 30-year mortgages rose to 7% recently. However, it fell to 6.9% last week amid signs of easing inflation.

The higher rates have slowed down demand from homebuyers, causing a plunge in home sales volume.

Yun earlier this month stated that “Much lower buying capacities have slowed home price rise and the trend will continue until interest rates stop rising,” 

The Average Contract Rate On 30-Year Fixed Mortgages Recently Spiked Above 7 Percent For The First Time In 20 Years, Though Last Week It Dropped To 6.9 Percent

Recent spikes in the average 30-year fixed mortgage rate of 7% were unprecedented for 20 years. But, last week it fell to 6.9%

Rising Mortgage Rates Will Eventually Start To Boost Debt Service As A Percentage Of Disposable Income. The Fed Hopes To Slow Inflation By Raising Borrowing Costs

As a percentage increase in disposable income, rising mortgage rates will lead to a rise in debt service. Inflation will be slowed by the Fed raising borrowing costs.

‘The median income needed to buy a typical home has risen to $88,300 – that’s almost $40,000 more than it was prior to the start of the pandemic, back in 2019.’ 

However, home prices are still rising, but at a slower pace. The NAR reported that the September median sale price of existing homes was $384,800. This represents an 8.4 percentage increase from one year ago. 

Experts believe that tight inventory has supported prices. Many homeowners locked into lower mortgage rates may not be willing to sell their homes and take on a higher rate to purchase another home. This will limit the number of homes on the market.

Although it is indicative of an economy in trouble, buyers will likely welcome lower prices as they are less likely to be frustrated by rising prices. 

While Indicative Of An Embattled Economy, The Lower Prices Will Be Welcomed By Buyers Who Have Grown Frustrated By Rising Asking Prices

The lower prices are indicative of an economic downturn, but buyers who have been frustrated by rising prices will appreciate the lower prices. 

Inflation Hit A 40-Year High In June, And The Fed Is Trying To Bring Price Increases Down

The Fed is working to reduce inflation, which reached a record high of 40 years in June.

Analysts, meanwhile, are now coming around to the prospects that house prices could see a correction, with the Chief Economist of National Association of Realtors saying trends in the new home prices could also vary by region.

Senior economist Lawrence Yun stated that the West Coast’s most expensive markets will experience price drops due to the rapid price appreciation. This is due to years of low home building. 

He Additionally, the Midwest, home to the lowest prices in the country, could see its prices rise ‘as rents and incomes both increase’

Enrique Martínez-García, a senior research economist at the Dallas Fed, alo noted that the US housing market’s recent explosive price growth is unstainable, citing how home prices rising 94.5 percent from first quarter 2013 to second quarter 2022, a gain of 60.8 percent after adjusting for inflation.

He stated that this unprecedented pandemic boom presents an outsized risk to the U.S. Economy, pressing housing rents and, thus, inflation higher.

‘The possibility of a sharp price correction leading to an economic contraction—were one to materialize—would further complicate Federal Reserve inflation-fighting efforts.’  

Despite the bank’s efforts in stabilizing the economy, unemployment remains low. Homeowners who have bought in recent years are enjoying rock-bottom rates that make their monthly payments more affordable. 

This may be good news for some, but it also means that the future is almost certain A surge in defaults, like the one that wiped out the US housing market in 2008

The forecasts for the future housing market are not always accurate. In the coming weeks, the November real-estate numbers will be released to provide further insight on the state residential realty market.


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