Are Home Prices Going Down – There were enough homebuyers. High mortgage rates, coupled with record home price increases of 42% since the start of the pandemic, have pushed monthly mortgage payments to levels that are simply out of reach for tens of millions of would-be homebuyers. As more buyers take the rain test, the housing market correction only gets more intense.
This week we learned that mortgage purchase applications decreased by 18% for the year. Meanwhile, new home sales fell 17% and single-family housing starts fell 16%.
Are Home Prices Going Down
Even with housing transactions plummeting, we still haven’t returned to a balanced market. Inventory levels remain a staggering 49% below July 2019 levels, giving most sellers, at least for now, enough leverage to hold back from selling below the market earlier this year. That said, as inventory levels continue to rise, it’s possible that some regional housing markets will actually see year-over-year home price declines in 2023.
Muskegon Could See A Drop In Home Prices
On Friday, Redfin released its “risk score,” which shows housing markets at the highest risk of a “housing downturn.” The higher the market’s “risk score,” the more likely the market could see year-over-year declines in home prices. In total, Redfin looked at 98 regional housing markets and evaluated factors including home price volatility, median debt-to-income ratio and home price growth.
Of the 98 markets measured by Redfin, Riverside had the highest likelihood of seeing a “housing slump.” It was followed by Boise, Cape Coral, North Port, Las Vegas, Sacramento, Bakersfield, Phoenix, Tampa and Tucson.
“Popular migration destinations where home prices have soared during the pandemic, including Boise, Phoenix and Tampa, are likely to see the impact of the housing slump, with home prices falling year-over-year if the economy goes into recession, a scenario that some economists believe looks likely. as inflation persists and stock markets falter. Homeowners in those areas who are considering selling may want to list their homes soon to avoid a potential price drop,” Redfin researchers wrote.
Sellers are least likely to see prices drop. Redfin says Akron. Markets like Philadelphia, El Paso, Cleveland and Cincinnati are not far from it. As the housing boom petered out, homeowners in those areas saw less investor activity and more modest home price growth. Amidst the boom, homeowners in places like Akron no doubt had FOMO as they watched their peers in Austin and Boise experience an exorbitant rate of home price growth. But now, homeowners in markets like Akron and Cleveland are likely to be thankful. Historically speaking, the sharpest housing corrections tend to occur in the fastest growing markets.
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“Relatively affordable northern metros, some in the Rust Belt, such as Cleveland and Buffalo, are the most resilient in the event of a recession. Prospective home buyers in those areas can move forward with the confidence that home values are less likely to drop. is decreasing,” Redfin researchers write.
Every quarter, Moody’s Analytics calculates an “overvalued” or “undervalued” indicator for about 400 markets. The company aims to determine whether fundamental factors, including local income levels, can support local housing prices. It is only a concern when the housing market is significantly “overvalued”. The bad news. In the first quarter of 2006, the average US housing market was “overvalued” by 14.5%. In the first quarter of 2022, according to Moody’s assessment, the regional average housing market was “overvalued” by 23%.
Being disconnected from the underlying fundamentals of the economy does not guarantee that the market will see a sharp decline in housing prices. However, because the market is significantly “overvalued,” it increases the likelihood that housing prices will fall if both a housing correction and a recession occur. Moody’s Chief Economist Mark Zandi tells
That housing markets that are more than 25% “overvalued” are likely to experience a 5-10% decline in home prices. If a recession hits, prices in those markets could drop 15% to 20%.
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Already, we’re seeing “bubble” markets like Boise and Austin see the fastest corrections. Just look at the inventory. Over the past six months, inventory levels in Boise and Austin have increased by 161% and 220%, respectively.
That Boise is poised to become the first housing market to post year-over-year price declines. A real estate research firm predicts that could come in December. For that to happen, Boise home prices would not only have to erase all of their spring 2022 gains, but also fall below December 2021 prices.
“You could make a strong case that the last 10% of the home price appreciation in many housing markets was pure wishful thinking and irrationality, and it’s going to come off the top really quickly,” John’s head of research, Rick Palacios Jr. Burns Real Estate Consulting “That’s exactly what we’re all seeing right now.” The median home sale price in the U.S. fell 3.3% in March to $400,528, the biggest annual decline since 2012. That follows a 1.2% decline in February. , which was the first annual decline since 2012.
Epidemic boomtowns and expensive Bay Area markets caused prices to fall in March. Prices in Boise, ID fell 15.4% year-over-year, more than any other US metro area analyzed. Austin, Texas (-13.7%), Sacramento, California (-11.9%), San Jose, California (-10.5%) and Oakland, California (-9.7%) followed. Boise also saw the largest decline in pending home sales, with a 78.8% year-over-year decline. Nationwide, expected sales fell 26.6% on a seasonally adjusted basis to the lowest level since the start of the pandemic (April 2020).
Interest Rates Go Up, Home Prices Go Down
A decline in expected sales is a major contributor to falling home prices. Fewer buyers mean sellers have to list their homes for less to attract the remaining hunters.
“I was consistently busy in the fall, but things really quieted down in March after the collapse of Silicon Valley Bank,” said Boise real estate agent Shauna Pendleton. “It killed buyer growth and put us back to where we were last year when mortgage rates went up. There is a fear that everything will be destroyed. There are bank failures, inflation, fears of recession, volatility in mortgage rates, war in Ukraine, spy balloons. some wonder if they should take their money out of the bank and park it in a safe instead of spending it on a new one. House.”
Pendleton continued. “The irony is, it’s actually a pretty good time to buy in Boise. Declining homebuyer demand means prices are falling, and many sellers, especially homebuilders, are offering discounts. It’s not uncommon for a buyer to get a home for less than list price.”
Just 28.5% of US homes sold for more than their final list price in March, compared to 54.1% a year earlier.
Will The Housing Market Crash In 2023?
Epidemic boomtowns and expensive coastal markets are seeing their housing markets quickly slow as home prices overheated in recent years and are now coming back down to earth after many buyers priced themselves out. Prices in Boise, for example, rose a record 40.9% in May 2021 as low mortgage rates, telecommuting and relatively affordable housing brought many homebuyers from more expensive parts of the country. That compares with a national record increase of 26% for the same month. The records are dated 2012.
Markets that haven’t heated up as much in recent years have held up relatively well. Pending sales fell the least in Fort Worth, Texas, Dallas, Indianapolis, Cincinnati and Buffalo, New York. And prices rose more than 10% year-over-year in March in Milwaukee, El Paso, TX, Omaha, NE, Camden, NJ and Knoxville, TN, the biggest gains in the country. When nationwide price growth hit a record 26% in May 2021, Milwaukee prices rose just 12.5%, meaning they had less room to fall.
Nashville’s housing market has slowed since the peak of the pandemic, but demand is steady, according to local real estate agent Jennifer Bowers. Prices are up about 1% from a year ago, and expected sales are down slightly less than nationwide.
“Nashville’s housing market is stable,” Bowers said. “We’re still seeing a lot of people moving in from Chicago, Texas, California and Colorado, where historically people haven’t come to Nashville. Some move for political reasons, some for our low taxes, and many for relatively affordable housing prices. Prices are high in the eyes of many locals, but we are still quite affordable compared to many parts of the country. We also have a strong job market and lots of new construction coming on the market, which is supporting home sales.”
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High mortgage rates are pushing both buyers and sellers to stay put. New listings fell 23.3% year-over-year in March to the lowest level on record since the start of the pandemic on a seasonally adjusted basis.
Many homeowners are hesitant to sell because moving would mean taking on a higher mortgage rate when they buy their next home. The average 30-year fixed mortgage rate was 6.54% in March, compared to 4.17% last year. Others are staying put because they’ve already bought their dream home in recent years or fear they won’t be able to find another home they like given the lack of listings.
The lack of homes on the market contributes to a decrease in sales, which prevents housing prices from falling further
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