The United States housing market has hit a stunning slump from highs seen in the immediate aftermath of the Covid-19 pandemic.
According to a study by the American Enterprise Institute published by fortune magazine, the west coast is experiencing rapid home price declines in cities including crime-ridden San Francisco and Portland, Oregon.
The research was conducted by Ed Pinto, director of the Housing Center at the American Enterprise Institute. Pinto told Fortune he predicts the “damage” will spread to the Northeast, with the low and mid markets being hit hardest.
Northern California leads the way with San Jose down 10.8 percent since September, followed by San Francisco at 8.5 percent, then Seattle at 8.2 percent, Denver at 5.8 percent, San Diego at 5, 2 percent, Portland 5.1 percent, Las Vegas 4.8 percent and Phoenix at 4.4 percent.
The West Coast is experiencing rapid home price declines in cities including crime-ridden San Francisco and Portland, Oregon
The Fortune report says other cities across the country have seen ominous slight declines. Those in include, Dallas, Orlando, Atlanta and Raleigh.
However, during the post-Covid boom, those cities remained more affordable compared to their Western counterparts, so the downturn would always be less severe.
Pinto told Fortune, “The expensive parts of the market are the first to shrink, because they suffer the most when the Fed takes the punch away and interest rates rise.”
He continued, “That’s because high-income buyers borrow in the private markets, and when interest rates rise, they have a harder time qualifying for home loans than lower- and middle-income borrowers who borrow from Fannie Mae, Freddie.” Mac and get FHA.”
Pinto went on to say that the housing market is likely to be affected by the impending economic recession. He said the rise in unemployment will lead to more bankruptcies and distressed sales.
The economic downturn is likely to last for eight months
Earlier this month, a Bloomberg study of economists’ opinions has shown that a recession is a 100 percent certainty in the next 12 months.
a separate Wall Street Journal study published over the weekend showed that 63 percent of economists believed a recession coupled with job losses in 2023 was inevitable.
However, that 63 percent is the highest probability of a recession WSJ economists have given in the midst of a recession since July 2020.
Those involved in the investigation determined that the recession would lead to a federal rate cut over the next two years.
Regarding that cut, Daniil Manaenkov of the University of Michigan told the Journal, “Soft landing” will likely remain a mythical outcome that will never actually happen.”
Pinto also pointed the finger at gasoline prices across the country. He said: ‘Rising petrol prices are often the canary in the coal mine for a fall in house prices.’
He said people will try to live closer to their jobs to save on gas costs. ‘
It is Pinto’s view that homeowners in New England and the Tri-State area will suffer the most from rising gas prices.
“That reduces all the demand. Prices for heating oil are extremely high in New England. Add higher gas prices on top of regular inflation. Plus, these are states in the rust and frost belts. If unemployment rises substantially, their cheaper markets will be hit particularly hard,” Pinto said.
While states like Florida and the Carolinas, which saw massive migration during Covid-19, will continue to thrive thanks to people leaving the northern states for warmer climes.
In September, home sales fell to their all-time low, new data shows, as mortgage rates hit their 20-year high and inflation bites into existing savings.
US home sales fell in September as mortgage rates (in yellow) rise and house prices (in red) remain stubbornly high
New data from redfin, who boasts of running the country’s number one real estate brokerage site, published Wednesday, saw the magnitude of the slowdown — which had been widely predicted.
Home sales in September fell 22.8 percent year-on-year, with 499,941 deals closed compared to 647,413 in September last year.
The national average interest rate for 30-year fixed rates was 6.1 percent — up from 2.9 percent this time last year — and has only risen since.
Mortgage rates have more than doubled since last year, reaching a 20-year high last week, according to data released Wednesday by the Mortgage Bankers Association.
The 30-year fixed rate rose to 6.94 percent in the second week of October, from 6.81 percent a week earlier.
Redfin also reported that sellers were rethinking amid the market seize up: New listings fell 22 percent last month, marking another grim record for the biggest drop in history, excluding the pandemic months of April and May 2020 .
“The US housing market has come to a halt again, but the driving forces are completely different from those that brought it to a halt at the start of the pandemic,” said Chen Zhao, chief economic research officer at Redfin.
“This time, demand is falling due to rising mortgage rates, but prices are being pushed up by inflation and a decline in the number of people putting their homes up for sale.
“Many Americans are stuck because they’ve already moved and had very low mortgage rates during the pandemic, so they have little incentive to move today.”
The median US home price rose 8 percent year-on-year in September to $403,797.