Real estate industry economists are stating that the nation’s housing market is on a correction course with housing prices slowly moderating, and even declining, in some areas.
According to the recently released Federal Reserve Beige Book for the month of July, rising interest rates and a slowing economy is neutralizing the rapid increase in home prices for the US. Several leading housing-market economists are projecting that prices will continue to decelerate as demand for housing is also decreasing.
The Beige Book is published eight times a year from the Federal Reserve and sources bank directors, business leaders, community organizations, economists, market experts, and other reliable sources to report on the current state of the housing market in the US.
“Housing demand weakened noticeably as growing concerns about affordability contributed to non-seasonal declines in sales, resulting in a slight increase in inventory and more moderate price appreciation,” states the Federal Reserve’s most recently released Beige Book report.
“With inflation running well above the target rate, the market’s expectation that further, substantial monetary tightening is needed has driven interest rates even higher, and interest rate-sensitive sectors, including housing, are slowing in response.”
Fannie Mae’s Economic and Strategic Research Group released a recent report that is projecting “strong deceleration in home-price growth going forward due to higher mortgage rates and the overall slowing economy affecting purchase demand.”
Fannie Mae Senior Vice President and Chief Economist Doug Duncan said that “homes listed for sale are increasingly seeing asking-price reductions, and both construction and home sales — both existing and new — are slowing.”
Freddie Mac, in a quarterly forecast report published by its chief economist, Sam Khater, who also projects that “homebuyer demand will moderate in the months ahead, resulting in a switch from the hot housing market of the last two year to a more normal pace of activity.”
“The Federal Reserve’s action to help manage inflation [by raising rates] has created significant volatility in mortgage rates and, by extension, the housing market. Although house-price appreciation will grow at a more moderate rate, home prices [still] remain high relative to homebuyer incomes,” Khater said.
“Taken together, these factors are exacerbating affordability challenges and causing a slowdown in the housing market. We project that home-price growth will average 12.8% in 2022 but will drop to 4% in 2023. By comparison, home-price growth was 17.8% in 2021.”
Mark Zandi, chief economist for Moody’s Analytics, stated that “despite the headwinds, we are unlikely to see a housing-market meltdown like that experienced during the global financial crisis some 15 years ago.”
“Home sales have really gotten completely hammered. Inventories are rising across the country. They’re still low by historical standards, but I suspect that’s going to change pretty quickly, particularly in the most juiced markets. The market is going to go into correction, I don’t think, however, it’s going to crash for several reasons.”
According to Zandi, the reasons the market will avoid a crash “are that overall housing-inventory levels remain relatively tight by historical measures; mortgages overall have and continue to benefit from solid underwriting and oversight; and we are not seeing the kind of speculation that marked the housing market in the run-up to the 2006/07 crash.”
“I don’t think national housing prices will decline in a meaningful way. But there will be some price declines across the country. The worst price declines [are projected to] be close to double digits — [near] 10% peak to trough — [in places like a] Phoenix, or Tampa. Although in the grand scheme of things, those also are markets where prices were up 30% this past year and 30% the previous year, so you’re only giving back a bit of what has been gained over the past few years,” Zandi explained.
Julia Coronado, president and founder of housing-market research firm MacroPolicy Perspectives, emphasized that “homebuyers and consumers generally are not as highly leveraged in terms of debt, compared to the era of the prior housing-market crash some 15 years ago. That will help moderate the impact of any housing-price decline going forward.”
“For some markets that have experienced rapid home-price appreciation, a decline in home values may benefit the overall market. At least what I’m seeing in a very speculative market here on the ground in Austin is that a rapid pace of price discounting is now taking hold, which I think is great,” said Coronado.
“We’ve gone up about 50%, one of the highest paces of appreciation over the last two years, and if we [home prices in Austin] went down 30%, it would be fine. You’d still have most homeowners up in value overall and meanwhile, it could provide a lot of relief on rent growth, on [housing] affordability and facilitate a move back to lower mortgage rates over time,” she concluded.
Eric Mastrota is a Contributing Editor at The National Digest based in New York. A graduate of SUNY New Paltz, he reports on world news, culture, and lifestyle. You can reach him at email@example.com.