Experts see housing prices dropping as high mortgage rates hit demand

CONSUMER SENTIMENT ON HOUSING FALLS TO RECORD LOW AS FED HIKES RATES

Median existing home prices peaked at a record high in June of $413,800 and have fallen to $379,100 as of October, according to the National Association of Realtors. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, which has been used as a gauge since 1987, has also tracked monthly price declines since June.

As the Federal Reserve has raised its interest rate target, mortgage rates have soared.

As of Monday, the average rate on a 30-year fixed-rate mortgage was 6.58%, more than double what it was the year before, according to Freddie Mac. The rate on an average 15-year fixed-rate mortgage was 5.9%.

Sales of existing homes have fallen for a ninth straight month and are now at the lowest level since early in the pandemic. Existing-home sales plunged by 5.9% in October to a seasonally adjusted annual rate of 4.43 million, according to a report by the National Association of Realtors released Friday. Sales were down nearly 30% from a year ago.

Brian Marks, executive director of the University of New Haven’s Entrepreneurship and Innovation Program, said he expects rising mortgage rates to send prices lower but not to cratering levels.

“The way I’m reading things, yes, I think there will be continued downward pressure but not to the point of seeing a bust in the housing market,” Marks told the Washington Examiner, adding the caveat that “it’s not comparable to the last collapse in housing we had during the financial crisis — the dynamics are very different today.”

Robert Dietz, senior vice president and chief economist of the National Association of Homebuilders, told Fixr that his group is forecasting home price declines throughout next year, with prices falling by about 10% in typical markets from their peak.

Others foresee more dramatic price declines.

“In one line: Collapse in prices is coming,” said Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, according to Axios.

Goldman Sachs recently slashed its home price outlook for 2023 from about even to down 4%, citing a lack of affordability depressing demand.

“The insane residential prices that peaked during COVID will now come crashing down to reality again. Average and aging homes worth a few hundred thousand dollars pre-COVID that somehow sold like hotcakes for nearly a million dollars during COVID will be no more,” said Baron Christopher Hanson, real estate consultant at Coldwell Banker Real Estate.

Jeff Tucker, a senior economist at Zillow, noted that the free fall seen more than a decade ago came from a push from sellers who were willing to take a loss on their homes. The housing inventory then was also much higher than it is now.

“I would be surprised to see prices anywhere drop below where they were in 2019,” Tucker told CNN Business. “There was some overheating in the housing market in 2021 through this spring that pushed prices higher than what the fundamentals would support. Now they are coming down.”

How much prices may fall is also partially dependent on the region of the country.

Declines will be more pronounced in areas that boomed during the pandemic — for example, Austin, Texas, and Boise, Idaho, according to Tucker.

“Nationally, we might see a 5% decline from the peak,” he said. “But prices will decline by more in the West, and there will be a smaller decline in the Southeast.”

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As the housing market reacts to the Fed hiking interest rates and changing economic conditions, consumer sentiment regarding the housing market is also taking a beating.

About 4 out of every 5 consumers describe homebuying conditions as bad, according to the University of Michigan’s consumer sentiment survey for this month. That is the highest number recorded by the survey, which goes back to 1978.