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The US housing market has seen a series of ups and downs throughout the year, with prices moving unpredictably.
The market saw a comfortable rise in prices two years ago.
Since then, house prices have peaked but are now slowing down.
Lower housing prices
Potential buyers and owners are wary of the market movement and wonder how far prices will fall.
Many experts believe it will continue to decline, but they believe it will not fall as low as it has in recent years.
The S&P CoreLogic Case-Shiller indices are a tool that measures home prices in the United States.
It reports that national house prices fell 27% from the 2006 peak to the 2012 trough.
Jeff Tucker, Senior Economist at Zillow, explains:
“It was different in 2008, 2009 because that drop in prices was because of a push from sellers.”
“Because of foreclosures and short sales, there were a lot of extremely motivated sellers who were willing to take a loss on their homes.”
Read also: Housing prices set for another hit as mortgage rates surge to 7%
Inventory and mortgage rates
Tucker also highlights that the real estate crash happened when the inventory of homes for sale was four times higher.
Inventory is currently below pre-pandemic levels, increasing housing competition.
The competition also keeps prices high.
Mortgage rates have more than doubled since the start of this year.
The doubled mortgage rate has dramatically changed the calculations for homebuyers.
Black Knight is a mortgage company that found an interesting report.
There is a 73% increase as monthly repayments on mid-priced home equity and interest-rate mortgages increased by $930 from last year.
How low will housing prices drop?
Black Knight reports that buying a home today is more expensive compared to previous decades due to factors like:
- Increasing mortgage rates
- Elevated home prices
- The slow-moving wage increase
While the factors seem intimidating, buyers are in store for some relief.
Goldman Sachs economists expect home prices to drop about 5-10% from their June peak.
Wells Fargo recently predicted that the national average price of single-family homes will drop 5.5% year-on-year by the end of 2023.
Economists expect the average house price to drop to $364,000, down 5.5% from this year.
They also predict that house prices will recover but later rise in 2024.
Prices will rise 3.3% to 376,000 by the end of 2024.
Wells Fargo researchers wrote a statement saying:
“The primary driver behind the housing market correction thus far has been sharply higher mortgage rates.”
“If our forecast for Fed rate cuts is realized, mortgage rates are likely to fall slightly just as cooling inflation pressures boost real income growth.”
“A modest improvement in sales activity should then follow, which will reignite home price appreciation heading into 2024.”
Read also: September witnesses new home building retreat as mortgage rates intimidate buyers
The influence of location
Depending on the location, house prices will likely go down.
According to Jeff Tucker, the slowdown will be regional from the pandemic price run-ups.
At the time, real estate prices were rising in markets across the country.
The declines will be most evident where profits will be highest during the pandemic.
Tucker was referring to the West and the Sun Belt, which includes cities like Austin, Boise and Phoenix.
“Nationally, we might see a 5% decline from the peak,” he explained.
“But prices will decline by more in the West, and there will be a smaller decline in the Southeast.”
According to Zillow, house prices have fallen from month to month in pandemic hotspots, including:
- Austin, down nearly 1%
- Las Vegas, down 1.9%
- Phoenix, down 2.3%
Prices in Boise, Idaho, rose nearly 60% during the onset of the pandemic but are already seeing a yearly decline.
According to Zillow, prices fell 3.9% year-on-year in September.
“A number of metro areas, especially in the West, will see some year-over-year price declines this spring,” said Tucker.
“That will be the worst comparison time because that’s when many markets reached their peak.”