“We saw [home] prices have risen very, very sharply over the past two years. So that’s changing now. And the rates have gone up,” Powell told reporters in June. “We are well aware that mortgage rates have increased significantly. And you see an evolving housing market. We are watching it to see what will happen. How much will this really affect residential investment? Not really sure. How will this affect housing prices? Not really sure.”
“I would say if you are a home buyer or someone or a young person looking to buy a home, you need a little reset. We need to get back to a place where supply and demand are together again and inflation is low again and mortgage rates are low again.
It’s clear the Fed’s “housing reset” will give buyers more options (i.e. rising inventory) and more leeway (i.e. less bidding wars). The question mark – which Powell acknowledged in June – will this drive home prices down? Historically speaking, house prices remain stable until the economy forces the hand of sellers.
To better understand where house prices might be headed, Fortune contacted CoreLogic to see if the company would provide us with its updated August assessment of the country’s largest regional housing markets. To determine the probability of a decline in house prices in the area, CoreLogic assessed factors such as income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates and inventory levels. Next, CoreLogic classified regional real estate markets into one of five categories, grouped according to the likelihood of home prices in that particular market falling between June 2022 and June 2023. Here are the groupings the real estate research firm used to August review:
- Very high: More than 70% chance of falling prices
- High: 50% to 70% chance
- Medium: 40% to 50% chance
- Down: 20% to 40% chance
- Very slow: 0% to 20% chance
Between June 2022 and June 2023, CoreLogic projects U.S. home prices to rise another 4.3%. But that’s at the national level. At the regional level, some markets are exposed to a high risk of falling prices.
Among the 392 regional real estate markets examined, CoreLogic found 125 markets have more than a 50% chance of seeing local house prices fall over the next 12 months. In JulyCoreLogic found that 98 markets had more than a 50% chance of falling house prices over the next 12 months. In June45 markets were at risk. In Mayonly 26 markets fell into this camp.
Why is CoreLogic continuing to lower its risk rating? It boils down to deteriorating data on the US housing market. From one year to another, Sales of existing houses and new home sales are down 20.2% and 29.6%, respectively. This is the sharpest contraction in real estate activity since 2006.
“The likelihood of lower house prices continues to intensify as mortgage rates hit a new high in June and housing demand has fallen significantly,” said Selma Hepp, deputy chief economist at CoreLogic. . Fortunee.
“Downside price risk remains concentrated in areas that have experienced extremely high house price growth over the past two years, but not the same level of population and income growth, and areas that are historically more sensitive to rising mortgage rates and signals of recession”,
Of those 392 regional real estate markets measured by CoreLogic, 67 markets in August have a “very low” probability of falling house prices over the coming year. Another 133 housing markets are in the “weak” group and 67 markets are in the “medium” group. CoreLogic places 85 markets in the “high” camp. CoreLogic ranked 40 markets as having a “very high” chance of falling home prices over the coming year. This includes major markets like Boise, San Francisco and Lake Havasu City.
The real estate sector should always be on high alert when the Federal Reserve goes into inflation-fighting mode. After all, the sector is the most rate-sensitive sector in the economy. That said, some regional markets should be more vigilant than others. Historically speaking, when a real estate cycle “turns around”, it is normally significantly “overvalued” housing markets that are most exposed to the risk of a house price correction.
According to CoreLogic, 75% of the nation’s regional real estate markets are “overvalued” relative to underlying economic fundamentals. A large number of these sparkling markets, like Boise, are at the highest risk of a price correction. However, there is one big exception: San Francisco. Although CoreLogic says the Bay Area is at “very high” risk of falling house prices, it says the market is not overvalued. What’s going on? High-cost tech hubs, like San Francisco and Seattle, are being hit hard by the tech downturn. Not only are their high-end real estate markets more rate sensitive, but so are their tech sectors.
A growing number of research firms agree with CoreLogic that markets like Boise and San Francisco are at risk of lower home prices. However, CoreLogic views Phoenix — a market where stocks have hit 2019 levels — as “low risk” for a price drop. Research groups like Moody’s Analytics and John Burns Real Estate Consulting predict that home prices will fall in Phoenix over the coming year.
“People don’t expect prizes [in Phoenix] increase rapidly, if at all. The median home price in Metro Phoenix has fallen over the past two months. If prices keep falling for long enough people will end up expecting prices to keep falling in the future and then we could see the housing market turn around in 2021,” said analyst John Wake. independent real estate based in Phoenix. Fortune.
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