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Tag: home price correction

  • Interactive map: The home price correction (or lack of correction) in America’s 400 largest housing markets

    Interactive map: The home price correction (or lack of correction) in America’s 400 largest housing markets

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    Across the country, mortgage brokers and builders are scrambling as millions of potential buyers sit on the sidelines after last year’s historic mortgage rate shock. The numbers aren’t pretty: On a year-over-year basis, mortgage purchase applications are down 36.4% and existing home sales have fallen 35.4%.

    While home transactions went into free fall in the second half of 2022, home prices have felt less of an impact. Through October, seasonally adjusted U.S. home prices were down just 2.4%, as measured by the Case-Shiller National Home Price Index. On one hand, that marks the second biggest home price correction of the post-WWII era. On the other hand, it’s mild compared to the 26% peak-to-trough U.S. home price crash from 2007 to 2012.

    In the future, Moody’s Analytics chief economist Mark Zandi expects the story to begin to change: The free-fall in home sales will soon bottom out, while the home price correction will carry on.

    “Housing demand (home sales) is close to a trough, housing supply (housing starts and completions) has yet to hit bottom, and house prices have a way to go before reaching their nadir,” Zandi tells Fortune.

    By the time U.S. home prices bottom out, Zandi expects them to be 10% below the 2022 peak. He isn’t the only economist who thinks home prices will continue to fall: Among the 24 major housing forecasters tracked by Fortune, 17 predict that U.S. home prices will decline further in 2023. (Another seven firms think U.S. home prices will remain flat or rise by a low single-digit amount in 2023).

    “The housing market downturn, triggered by rapid increases in mortgage borrowing costs, continues to cause us significant concern. Prices have risen hugely over the past couple of years as demand vastly outstripped limited supply of homes, but this process is going into sharp reverse,” writes James Knightley, chief international economist at ING. His firm expects around a 10% peak-to-trough decline in U.S. home prices.

    Keep in mind, when a group like ING or Moody’s says U.S. home prices, they’re talking about a national aggregate. Whatever comes next will likely vary significantly by market. After all, there’s a reason industry types like to say real estate is local.

    To better understand the regional home price story, Fortune reviewed the Zillow Home Value Index (ZHVI) for November 2022.*

    Through November, home values in 254 of the country’s 400 biggest housing markets were below their 2022 peak. In those markets, the average decline was 2.1%.

    “Home values slipped 0.2% in November, resuming a slow decline that began this summer. Once again, the proximate cause could be traced to high mortgage rates,” writes Zillow researchers. “While national prices only inched down, they slumped more dramatically in many formerly-hot housing markets.”

    The markets hit the hardest by the correction fall into one of two groups.

    The first group are boomtowns, often second-home markets or up-and-coming cities, where remote workers moved during the pandemic and pushed local home prices beyond what local incomes could support. That “froth” might explain why home prices are falling more swiftly in boomtown markets like Coeur d’Alene, Idaho (where home values are down 10.8% from the peak); Austin (down 10.4%); Phoenix (down 8.1%); Las Vegas (down 8%); Salt Lake City (down 7.9%); and Reno (down 7.6%).

    The second group comprises high-cost markets along the West Coast, including places like San Jose (where home values are down 10.6% from the peak); San Francisco (down 9.5%); Santa Cruz, Calif. (down 8.4%); and Seattle (down 5.8%). Historically speaking, those high-end markets are vulnerable whenever the stock market slips into bear territory or mortgage rates spike. Of course, both red flags occurred in 2022.

    While home prices in 254 major markets are below their 2022 peaks, another 146 major markets remain at their 2022 peaks. The ongoing mortgage rate shock has yet to cause home values, as measured by Zillow, to fall in markets like Indianapolis, Miami, and Philadelphia.

    So therefore the coast is clear in markets like Miami and Philadelphia, right? Not so fast, says Moody’s.

    While the home price correction has yet to impact tight inventory markets like Miami and Philadelphia, it still could this year. Moody’s expects home prices to fall further this year in every major regional housing market. In cities like Miami and Philadelphia, Moody’s expects that peak-to-trough decline to hit 16.9% and 5.3%, respectively. (Here is Moody’s outlook for the nation’s 322 largest markets.)

    While the ongoing housing downturn has translated into the U.S. housing market flipping from inflation-mode to deflation-mode, it has only barely touched the gains accrued during the Pandemic Housing Boom. As of October 2022, U.S. home prices were still 38.1% above March 2020 levels.

    Even in the housing markets hit the hardest by the correction, including San Francisco (down 9.5% from its 2022 peak) and Austin (down 10.4% from its 2022 peak), prices remain well above pre-pandemic levels. Indeed, as of October, home values in San Francisco were 16.9% above pre-pandemic levels while those in Austin were up 57.1%.

    *Note: The Zillow Home Value Index (ZHVI) is a measurement of the typical home value in a given region. According to Zillow, the index “reflects the typical value for homes in the 35th to 65th percentile range.” Fortune pulled ZHVI’s “raw version” which is not seasonally adjusted.

    Want to stay updated on the housing correction? Follow me on Twitter at @NewsLambert.

    Our new weekly Impact Report newsletter examines how ESG news and trends are shaping the roles and responsibilities of today’s executives. Subscribe here.

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    Lance Lambert

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  • Updated: Odds of falling home prices in your local housing market, as told by one interactive map

    Updated: Odds of falling home prices in your local housing market, as told by one interactive map

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    Unlike the stock market—which corrects through price shifts—housing corrections are historically felt the most acutely through declines in housing activity. That, of course, is why spiked mortgage rates are already translating into sharp declines in both existing and new home sales.

    That said, it’s increasingly clear that this housing correction won’t be felt through just a decline in housing activity. The housing correction is also putting downward pressure on home prices, with many markets having already slipped into a home price correction.

    To better understand where home prices might be headed, Fortune reached out to CoreLogic to see if the firm would provide us with its updated October assessment of the nation’s largest regional housing markets. To determine the likelihood of regional home prices dropping, CoreLogic assessed factors like income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates, and inventory levels. Then CoreLogic put regional housing markets into one of five categories, grouped by the likelihood that home prices in that particular market will fall between August 2022 and August 2023. Here are the groupings the real estate research firm used for the October analysis:

    • Very high: Over 70% chance of a price dip
    • High: 50%–70% chance
    • Medium: 40%–50% chance
    • Low: 20%–40% chance
    • Very Low: 0%–20% chance

    Between August 2022 and August 2023, CoreLogic predicts national home prices are poised to rise another 3.2%. That said, CoreLogic’s forecast model estimates a huge swath of the country is at risk of falling home prices.

    Of the 392 regional housing markets that CoreLogic measured, zero markets currently have “very low” odds of falling home prices over the coming year. Another 18 housing markets are in the “low” group and 39 markets are in the “medium” group. Meanwhile, CoreLogic put 97 markets in the “high” camp and 238 markets in the “very high” odds camp.

    This October assessment finds 335 markets have a greater than 50% chance of notching a negative year-over-year reading (i.e. markets in either the “high” or “very high” risk groups) over the next 12 months. In August, only 125 markets had a greater than 50% chance of falling home prices. In July, there were 98 markets at risk. In June, 45 markets were at risk. In May, just 26 markets fell into those “high” or “very high” risk camps.

    The trajectory is clear: Falling home prices are getting more and more likely.

    There’s two main reasons CoreLogic’s outlook continues to go lower. 1. Housing data, which feeds into the forecast model, continues to weaken in the face of deteriorating housing affordability. 2. Home prices are already falling in many markets.

    “With some markets already posting month-to-month declines since this year’s peak in prices, probability of price decline on a year-over-year basis intensified as well in August,” Selma Hepp, deputy chief economist at CoreLogic, tells Fortune.

    Where are home prices falling the fastest? The biggest declines are occurring in West Coast, Southwest, and Mountain West markets.

    “Markets already posting monthly declines are generally concentrated in the West and Mountain West, particularly in Washington, Idaho, California, Utah, Colorado, Oregon, Montana, Nevada and Arizona, and have seen relatively larger run-up in prices since the onset of pandemic,” Hepp says.

    The sharpest home price corrections can be found in one of two groups. The first group are high-cost tech hubs like Seattle and San Jose. Not only are those high-end housing markets more rate sensitive, but so are their tech sectors. The second groups are frothy housing markets like Austin, Boise, and Phoenix. Those frothy markets—which saw home values go far beyond what local incomes can support during the Pandemic Housing Boom reach levels that local incomes are struggling to support.

    Hungry for more housing data? Follow me on Twitter at @NewsLambert.

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    Lance Lambert

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  • The home price correction intensifies—what to expect from the U.S. housing market in 2023

    The home price correction intensifies—what to expect from the U.S. housing market in 2023

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    That, of course, is what we’re seeing now. Despite favorable demographics and tight inventory levels, pressured affordability—spiked mortgage rates coupled with frothy home prices—is beginning to push home prices lower. In fact, this week we learned that U.S. home prices as measured by the Case-Shiller U.S. National Home Price Index posted its first month-over-month decline since 2012.

    Across the country, the U.S. housing market—which got priced to 3% mortgage rates during the Pandemic Housing Boom—is working toward equilibrium in the face of 6% mortgage rates. But we’re still in the early innings. And the ongoing home price correction still hasn’t hit every market: Between May and August, home values in San Jose fell 10.6% while home values grew 2% in Orlando.

    To better understand where the U.S. housing downturn heads next—and if the home price correction will soon hit more markets—Fortune reached out to Zonda chief economist Ali Wolf. When she’s not traveling around the country speaking to homebuilders, she’s advising the White House on housing matters.

    Below is Fortune‘s Q&A with Ali Wolf.

    Fortune: As the data rolls in, it’s pretty clear that home prices are falling in many markets across the country. In some places it’s fairly sharp. Do you expect home price declines to continue into 2023?

    Wolf: We haven’t seen home prices drop universally across the country, but there are some markets where home prices have started to come down and we expect to see that in more metros across the country in the next handful of months. Corrections in home prices can be expected in 2023 as long as interest rates remain elevated and consumer demand remains slow.

    What types of markets are the most vulnerable? 

    The markets that are the most vulnerable include: 1) Those where home prices rose sharply because of hybrid work, like Boise, Las Vegas, and Denver. 2) Markets that don’t have a local employment base to support the higher home prices (put another way, markets where home prices and incomes are out of whack), like Nashville and parts of Florida. 3) Markets where housing inventory has risen rapidly, like Phoenix and Austin.

    Why are markets like Austin, Boise, and Phoenix shifting so fast? 

    The housing booms seen in markets like Austin, Boise, and Phoenix were among the earliest in the nation and the sharpest. The record-low mortgage interest rates combined with lifestyle changes brought on by the pandemic, including work from home and increased relocations, drove a dramatic uptick in housing demand and supply could not keep pace.

    Those relocating from places like California and Washington were able to tap home equity from a sale in the higher cost market and put those funds towards buying a new home in these relatively more affordable markets. Relocation buyers found these markets very affordable compared to where they were moving from at the detriment of local buyers.

    There was a belief in these markets that the supply and demand imbalance was so severe and so long standing that the markets could never get overheated. Buyers, frantic to secure a home, were willing to pay almost any price to secure a home. Investors and flippers considered these markets ripe for opportunities. This mentality contributed to the massive run-up in home prices.

    As interest rates rose in early 2022, however, reality started to kick in. Home price appreciation was slowing and not every home that was listed was selling for above the list price within a day of coming online. The demand for housing slowed just as some of the new homes under construction started coming online and existing home inventory rapidly increased as sellers tried to time what they believed to be the top of the market. 

    How do you expect mortgage rates near 7% to impact the housing market? We were already correcting with 5% mortgage rates. Should we expect things to intensify with 6.5%-7% rates?

    Housing affordability is driven by many factors, but the two key inputs are home prices and mortgage rates. We just lived through a unique period in American history where rising home prices were offset by record-low interest rates. The cheap financing helped keep the monthly mortgage payment in check.

    Interest rates have risen dramatically since the start of the year, though, putting a strain on housing affordability. Buyers were already starting to get priced out of the market when interest rates moved from 3% to 4% and every 100-basis point increase has continued to price millions of Americans out of homeownership.

    If mortgage rates remain elevated for an extended period, we expect that housing demand will remain soft, new home construction will be restricted, and home prices will need to adjust downward across the country.

    Want to stay updated on the housing correction? Follow me on Twitter at @NewsLambert.

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    Lance Lambert

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