The Pandemic Housing boom was an inflationary engine. Inventory was overwhelmed by the high demand for homes during the Pandemic. Home price growth was double-digit. Rents can be jacked up due to soaring home prices. An already maxed out global supply chain is only made more stressed by an elevated builder demand for steel, lumber, and fridges.
The Fed thinks it's time to stop the housing boom. The Fed pulled the housing e-brake because of that.
The Fed has levers that it can use to put downward pressure on mortgage rates. The Fed started buying bonds in the early weeks of the epidemic. Mortgage rates were pushed to historic lows. The Fed started to sell bonds this year. Over the past six months, the average 30-year fixed mortgage rate has gone up.
They were aware of what they were doing.
The US housing market has been pushed into a full-blown housing correction by this swift move-up in mortgage rates. Home buyers are starting to feel the full impact of record home price appreciation because of the higher mortgage rates. Some borrowers have lost their mortgage eligibility due to their debt-to-income ratios.
What does the housing correction mean for the US? The revised housing forecasts were examined by Fortune.
The optimistic crowd is the first one we'll start with.
We looked at six forecast models and all of them predicted that we would enter a period of slowing home price growth. It's called The Great Deceleration by Fortune.
The industry is divided on where this declaration will lead. It's clear that Zillow is the most bullish of the bunch. Home prices in the U.S. will increase by 9.7% between May 22nd and May 23rd. It would not be a relief for buyers if that was the case. Since 1987, the average annual home price appreciation has been 4%.
Between April and May, the market appears to have passed a point of no return for home values. The deceleration is a clear signal that buyers are scaling back their demand for homes in the face of daunting affordability challenges.
We should point out that the forecast represents a huge downward revision. Home price growth was predicted to hit 17.8% by the end of the year. The price growth outlook has been slashed by 8.1 percentage points. There's a reason. The US housing market is slowing.
There is only one housing bull left. Not every person is bearish. Home prices are predicted to rise over the next year. The Mortgage Bankers Association and Fannie Mae expect home prices to grow in the U.S. The U.S. housing market would return to normal growth if any of those three forecasts come to fruition.
The two companies don't see eye to eye.
Home prices are predicted to fall over the next year. That's a big prediction. Over the past 50 years, there have only been two year-over-year home price declines.
By the year 2023, mortgage rates will be 6.5%. Mortgage payments will surpass the peak seen in the mid-2000s. Existing sales will go down more than 20% by the end of the year. House prices will decline as affordability constraints bite, but tight markets and a lack of forced sellers means we expect the drop to be relatively modest, with annual growth falling to 5% by mid-2023, according to Capital Economics.
If home prices fall on a national basis, it will likely lead to deep price cuts in some regional housing markets. Mark Zandi, chief economist of Moody's Analytics, said that. Moody's predicts that US home prices will not go up over the next year. House prices should fall by 5% to 10% in some markets. That prediction doesn't assume a recession. Moody's predicts a 5% decline in national home prices and a 15% to 20% decline in regional housing markets if the economy goes into a recession.
The housing market has peaked.
The forecasts are only looking out one year. It's helpful to look at the past to understand what's to come. The past doesn't repeat itself but it rhymes.
The '70s housing boom, the '00s housing boom, and the Pandemic Housing Boom all resulted in detached home prices. The first two booms are very different.
The U.S. housing market went crazy as baby boomers became homeowners. Builders built as many suburban homes as possible. It was not sufficient. At the end of the 1970s, the supply and demand mismatch caused home prices in the U.S. to go up 161%. An inflationary wave was seen during that period. The Federal Reserve raised interest rates to tame inflation. In 1982, those spiked mortgage rates pushed the housing market into a brief year-over-year decline. It wasn't a house crash. After several years of strong income growth, the housing market was able to return to a balanced market by the mid 1980's.
The housing boom wasn't as good.
Between January 2000 and July 2006 the price of a home increased by 84.6%. The U.S. housing market went into a correction. As the housing correction intensified, it became clear that the loans that were given out were for borrowers who couldn't afford to repay them. The mortgages went belly up once home prices began to fall. Between 2007 and 2012 nominal home prices would fall annually.
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