The real-estate market is taking a beating, with mortgage rates surpassing 7%.
“Rates are still rising, and will continue to rise here on out,” Christine Cooper, chief U.S. economist and managing director at CoStar Group, told MarketWatch in an interview.
But with home prices continuing to be elevated, that has really hurt affordability, she added, and pushed buyers out, which will hurt home sales.
And “it’s going to continue until we’re gonna see some price declines,” Cooper said. “And we’re seeing signs already.”
Sellers were holding out hope that the situation may improve, Ali Wolf, chief economist at Zonda Research, a housing market-research platform, told MarketWatch in an interview on the Barron’s Live podcast.
“What we’re hearing from the sellers’ side is that they definitely feel nervous that they’ve seen demand fall off,” Wolf said.
Builders and realtors initially thought that demand would slow, then recover, she added, but as rates continue to climb higher and consumers pull back, they’re seeing the writing on the wall.
In a recent survey by Fannie Mae FNMA, -4.50%, sentiment among home buyers dropped to the lowest level since 2011: 75% of respondents said that it’s a bad time to buy a home.
They’re saying “It’s not just a couple months, this may be a prolonged slowdown in the housing market,” Wolf said.
Will home prices drop in 2023?
Most economists are forecasting home-price appreciation to slow, and it has. Home prices, in fact, fell slightly on a month-over-month basis.
But others are increasingly talking about how they’re expecting corrections of 5% to 10%.
The median price of an existing home was $ 389,500, as of August, the National Association of Realtors said.
Mark Zandi of Moody’s Analytics is expecting national home prices to fall 10% peak-to-trough, and by 20% if there is a recession. “Buckle in,” he wrote on Twitter TWTR, +0.22%.
“Assuming rates remain near their current 6.5% and the economy skirts recession, then national house prices will fall almost 10% peak-to-trough,” he added. “Most of those declines will happen sooner rather than later. And house prices will fall 20% if there is a typical recession.”
“‘Buckle in.’”
Ivy Zelman, CEO of Zelman & Associates, expects national home prices to fall 4% in 2023, and 5% in 2024.
One developer, Don Peebles, CEO of Peebles Corporation, is expecting home prices to fall 15 to 20% within the next 18 months, The Real Deal reported on Friday.
Goldman Sachs is expecting home prices to fall 5% to 10% from the peak.
Wolf of Zonda expects a correction of 5% to 10%.
“We think some markets will see a more dramatic drop — some of the markets that had a really massive run up,” Wolf explained. “But they don’t come down anywhere like the Great Recession.”
Parts of the country like the Coachella Valley, Salt Lake City, parts of Denver, Boise, Las Vegas, Phoenix, Austin, all saw prices rise very sharply, she added.
Cooper of CoStar said that she’s seeing prices fall not just in pandemic boomtowns but also in expensive markets like San Francisco, San Jose, San Diego, and Seattle.
“There was a belief among investors and even among the development community that prices could only go up forever,” Wolf said, “and they had to build the homes because we’re so undersupplied.”
She added that there is a “limit to what people are either willing or able to pay.”
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com