Home prices have plunged during the second half of 2022 with demand for residential real estate cooling off in a number of states and cities across the U.S..And prices could continue to fall by as much as 20% next year as mortgage rates climb and the housing market normalizes in wake of the pandemic, according to a noted Wall Street economist.
Ian Sheperdson, chief economist with Pantheon Macroeconomics, said in a report this week that tumbling demand for homes amid sharply rising mortgage rates is weighing heavily on housing prices.
“[W]e expect home sales to keep falling until early next year.By that point, sales will have fallen to the incompressible minimum level, where the only people moving home are those with no choice due to job or family circumstances,” he said.”Discretionary buyers are disappearing rapidly in the face of the near-400 [basis point] increase in rates over the past year.”
Mortgage rates have more than doubled over the last year — and could keep climbing
Some real estate markets cooling as mortgage rates hit 20-year high Home values plunge in some U.S.cities as mortgage rates rise Home sales fell to 4.7 million last month, down 1.5% from August, according to the National Association of Realtors.
Rising interest rates could further tighten supply Mortgage rates have more than doubled this year.
The average rate on a typical 30-year mortgage rose this week to 6.94%, from 6.92% last week and 3.2% in January.
The average rate on 15-year, fixed-rate mortgages is now 6.23%, compared with 2.33% a year ago.
Rising rates have forced some homeowners to pump the brakes on selling their property because they would have to get a mortgage to buy another home as rates are surging.
“It’s entirely possible that even people who want to trade down will face a bigger monthly payment,” Shepherdson said.”That’s a good reason to stay put, thereby constraining supply.”
The supply of homes available for sale will likely shrink next year, predicted Shepherdson, while noting that “prices have to fall substantially in order to restore equilibrium.”
The median home sale price rose to $384,800 in September, up 8.4% from a year ago, the NAR said .
“We think inventory could increase modestly in the next month or two as homes sit on the market for longer, but new listings continue to decline as sellers retreat to the sidelines,” Nancy Vanden Houten, lead U.S.
economist with Oxford Economics, said in a research note.
How high will rates go? Economists expect mortgage rates to continue climbing next year as the Federal Reserve further pushes up borrowing costs in a bid to curb inflation.Rates could reach 8.5% “which would be another big shock to the housing market,” NAR Chief Economist Lawrence Yun told a group of real estate investors last week.Other analysts think mortgage rates could hit double digits.
Mortgage rates have soared nearly 3.8% since the end of 2021, according to Oxford Economics.Wall Street analysts expect the Fed raise to raise its benchmark interest rate by up to an additional 1.5% by year-end.
“At the beginning of the year, it seemed very unlikely that mortgage rates would push past 6%,” Lisa Sturtevant, chief economist for Bright MLS, told Realtor Magazine.”Now the question is how high will they go? A lot of the answer depends on how aggressive the Federal Reserve is going to go on rate hikes in its next two meetings.”
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Brooks Khristopher J.Brooks is a reporter for CBS MoneyWatch covering business, consumer and financial stories that range from economic inequality and housing issues to bankruptcies and the business of sports.
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