Housing Market News
According to a story featured on Fortune.com, Morgan Stanley anticipates a 4% year-over-year gain in US home prices, as assessed by the Case-Shiller Index, this year. However, given that the Case-Shiller Index rose 8.9% in the first six months of 2022, Morgan Stanley predicts US home prices will decrease by roughly 5% in the second half of 2022, including the 1.3% drop between June and August.
The drop in property prices will not end there. Morgan Stanley predicts that housing prices in the United States, as measured by the Case-Shiller Index, will decrease further by 4% in 2023. The Wall Street bank anticipates a 10% drop in housing values between June 2022 and the bottom in 2024. (Previously, Morgan Stanley predicted a 7% drop in US housing prices from peak to trough).
According to the bank, three levers can help to “depressurize” affordability going forward. First, if inflation decelerates and financial conditions loosen, that would in theory push mortgage rates lower and thus improve affordability. Second, rising incomes (which are up 4.4% annually) may improve affordability. Third, continuing home price declines would assist in “depressurizing” affordability. Morgan Stanley anticipates this third lever to be pulled so long as affordability remains “pressured.”
Here are some of the key points of Morgan Stanley's latest housing market outlook:
- Tight inventory won't stop home prices from falling—but it could create a floor.
- Although the current supply conditions historically argue for climbing home prices from here the ongoing affordability strain could see home prices fall even though inventory remains tight.
- Bull case: Home prices stop falling in 2023
- There are two key pillars to Morgan Stanley's “bull” case: Tighter than expected inventory levels and lower than expected mortgage rates.
- Peak-to-trough, Morgan Stanley expects U.S. home prices to fall 10% through 2024.
- However, there's a “bull” case where the firm believes U.S. home prices don't fall in 2023 and the peak-to-trough decline comes in around 5%.
- In 2023, Morgan Stanley expects 30-year fixed mortgage rates to average 6.2%.
- Bear case: Home prices crash 20%
- Morgan Stanley forecasts a 20% decline in U.S. home prices from peak to trough in the event of a “deep” recession, with an 8% decline in 2023 alone.
- But even if this “bear” scenario were to manifest, Morgan Stanley doesn't think it'd be a full-blown repeat of the 2008 crash as the mortgage servicing industry is far more practiced in offering borrowers foreclosure alternatives.
Here's another perspective by another multinational investment bank and financial services company. Goldman Sachs Chief Economist Jan Hatzius asserted that further housing pressure is likely, writing in a new note ominously titled: “Housing Downturn: Further to Fall.” Here are Hatzius' two predictions on the housing market for 2023.
Forecast on Home Sales:
“The sustained reduction in affordability, waning pandemic tailwind, and recent decline in purchasing intentions suggest that home sales are likely to fall further on the net: we forecast existing home sales of 4¼ million in Q4 (seasonally adjusted annualized rate; -12% vs. July) and new home sales of ½ million (flat). This lowers our residential fixed investment growth forecast to -15% in 2022 and 0% in 2023 (both Q4/Q4), vs. -13% and +1½% previously.”
Forecast on Home prices:
“Our model suggests that home price growth will slow sharply in the next couple quarters (+8½% quarter over quarter annualized rate (AR) in Q3, +3% quarter over quarter AR in Q4, corresponding to +14% Q4/Q4 in 2022), as the imbalance between supply and demand continues to shrink, mostly through lower demand. Thereafter, we expect home price growth to stall completely, averaging 0% in 2023. While outright declines in national home prices are possible and appear quite likely for some regions, large declines seem unlikely.”
Is the Housing Decline Possible Next Year?
A housing bubble typically starts with a rise in home demand during a period of low inventory, which can lead to an increase in house prices. Because of the prior surge in demand, a bubble may form when demand declines or remains unchanged while supply grows. When there aren't enough buyers available to purchase the fresh inventory of homes, property values may drop sharply as a result.
According to the Fannie Mae Home Purchase Sentiment Index, consumer confidence in the housing market declined in July to its lowest level since 2011. However, it is still unclear whether the U.S. housing market will implode.
“Surveyed consumers continue to express pessimism about homebuying conditions, with only 17 percent of respondents reporting it's a good time to buy a home,” it said in a release. “Meanwhile, the percentage of consumers believing it's a good time to sell has begun ticking downward in recent months, falling from 76 percent in May to 67 percent in July.”
Fortune magazine contacted Moody's Analytics to request access to its most recent in-depth housing analysis to better comprehend the current housing affordability crisis. Between the fourth quarters of 2022 and 2024, researchers at the financial intelligence organization analyzed how property prices are projected to change in 414 regional housing markets.
The Moody's Analytics forecast model forecasts that among the 414 largest housing markets in the US, 210 markets are likely to experience a decrease in home values over the next two years, while 204 markets are likely to experience an increase.
Over what local income would indicate would be affordable, property prices have increased significantly in certain markets, according to Hepp. “Therefore, as the more new building becomes available, the market for homes may be pulled back due to rising rates and the sense of overvaluation, which could result in price reductions.
In addition, there has been a lot of immigration into these areas from other states, primarily the Northeast, and Baby Boomers who are retiring. These new purchasers might now consider moving to other areas where they believe the cost of living is less expensive, which would reduce demand and possibly cause builders to lower their prices.
According to the research firm, 183 of the 413 biggest regional housing markets in the United States are “overvalued” by more than 25%. Boise, Idaho, which is overvalued by 71.7 percent, and Flagstaff, Arizona, which is overvalued by 60.6 percent, are two examples of these noticeably expensive markets.
While being overvalued doesn't necessarily indicate that a market's home prices will fall, significantly overvalued markets historically have a higher risk of seeing price declines, which Moody's Analytics chief economist Mark Zandi said was the case now, Fortune reported. The company expects home prices in those 183 markets to fall by 10 to 15 percent. If the U.S. enters a recession, Moody's Analytics predicts that those markets will see steeper declines of 15 to 20 percent, according to Fortune.
The prospect of a big drop in house prices is becoming more and more likely as home sellers give in to the mounting pressure on affordability posed by June’s rapid mortgage rate hike. Nationwide, home prices increased 18.3% year over year in June 2022, compared with June 2021, marking the 125th consecutive month of year-over-year increases, according to CoreLogic, a data analytics provider.
Though annual appreciation was still strong, it slowed from the previous month for the second consecutive month, reflecting reduced buyer demand in part due to higher mortgage rates and worries about a slowing economy. Lawrence Yun, the chief economist at the National Association of Realtors, points out that the housing markets that have experienced price gains may find themselves at a pivotal moment.
“What I can say is that those markets that boomed were driven by strong local job creations and from new residents moving into those regions, including as retirees,” he said. “So, for places like Phoenix, Tampa, and Boise, you may or may not see any meaningful price decline. They may also be poised for further price increases.”
Source:
- https://finance.yahoo.com/news/goldman-on-the-housing-market-further-to-fall-100931456.html
- https://fortune.com/2022/08/24/housing-market-falling-home-prices-2023-downgraded-forecast-moodys-analytics/
- https://fortune.com/2022/11/25/how-much-home-prices-will-fall-housing-market-2023-outlook-morgan-stanley-case-shiller-crash/
