Speaking to reporters in September, the chairman of the Fed, Jerome Powell, made it clear that the US housing market will “recover” in a “difficult correction” in the future.
“Housing has been going up at an unsustainably fast rate. So the decline in home prices that we’re seeing should help bring prices back in line with rents and other housing market fundamentals. That’s a good thing. That should keep housing prices up at a reasonable rate and at a reasonable pace, and people will be buying homes again.” “What we’ve been looking for for a long time is for supply and demand to be better aligned. We’re probably going to have to make a correction in the housing market to get back to that position,” Powell said. [housing] A correction should bring the housing market back into balance.
That is “difficult [housing] Correction” has seen the US housing market flip from inflationary to deflationary mode.
For 124 consecutive months, from its peak in February 2012 to its peak in June 2022, the seasonally adjusted Case-Shiller National Home Price Index has reported positive home price growth. Now we’re at a new low: US home prices have fallen for four consecutive months.
On Tuesday, U.S. home prices, as measured by the Case-Shiller National Home Price Index, fell 0.3 percent in October. Overall, U.S. home prices are down 2.4% since peaking in June.
On the one hand, the 2.4% decline in US home prices looks like a drop in the bucket. On the other hand, it’s already big enough to rank as the second largest home price adjustment in the post–World War II era. (That’s above the 2.2% decline between May 1990 and April 1991, but below the 26% peak-to-fall between 2007 and 2012.)
Let’s take a closer look at the Case-Shiller data to better understand the ongoing housing correction.
Not long after the Federal Reserve began putting upward pressure on interest rates — something that saw mortgage rates jump from 3% to 6% — the U.S. housing market went into correction mode. That’s because high mortgage rates, combined with skyrocketing home prices, have pushed affordability to historic highs.
Going forward, Moody’s Analytics Chief Economist Mark Zandi expects home sales to bottom out soon. However, he predicts it will take at least until 2024 before house prices come down.
“The need for housing [home sales] It is close to the pool; Housing supply [housing starts and completions] It has yet to hit down; And house prices have a way to go before they reach their nadir,” Zandi says Chance.
High-to-the-water, Moody’s Analytics expects U.S. home prices to fall by 10% if a recession doesn’t hit. If a recession occurs, Moody’s Analytics expects a peak-to-water decline of between 15% and 20%.
Through October, US home prices fell 2.4%, bringing us back to March 2022 levels. If that discount widens to 10% (see chart above). Brings us back to October 2021 levels.— An estimated 20% peak-to-water decline would return us to February 2021 levels.
That is the case. In terms of the last bust, this time around a big home price adjustment doesn’t see many borrowers going underwater (ie, their mortgage balance exceeds the value of their home).
While US home prices are falling, they’re still rising big time. In fact, October 2022 home prices are 38.1 percent above March 2020 levels.
The fact that home prices remain detached from fundamentals may explain why Federal Reserve officials are so reluctant to end the ongoing housing correction. Not only do increased house prices translate into rents, but this also makes homeowners feel richer and thus spend more.
According to the latest study published by the Fed, the epidemic housing boom has not only helped to exacerbate epidemic inflation—He was one of the biggest criminals..
“Our results provide compelling evidence that house price growth was a significant contributor to inflation during the pandemic… Back-of-the-post calculations suggest that house price growth can explain about 1/3 of the increase in the consumer price index excluding housing services between February 2020 and February 2022 ( CPI),” Federal Reserve economists wrote in a paper published in November.
Simply put: some domestic price deflation could help the Fed rein in runaway inflation.
Although it varies across the country, the housing correction has clearly arrived.
Among the 20 major US housing markets tracked by Case-Shiller, home price declines ranged from -0.95% in Chicago to -11.2% in San Francisco.
what’s going on? In the western part of the country, the issue of relative prices has seen the highest correction. That includes cities like Seattle (down 10.1 percent), San Diego (down 7.2 percent), Phoenix (down 5.4 percent) and Las Vegas (down 4.8 percent). Unlike their peers in the Northeast and Midwest, Western markets were more vulnerable to correction due to higher investor activity.
But even double-digit markets like San Francisco and Seattle are still above pre-pandemic home prices (see chart below). Since October, home prices in San Francisco and Seattle have increased 26 percent and 36.9 percent since March 2020, respectively.
Keep in mind, the home price data presented in this article may underestimate current depreciation.
The fact that the Case-Shiller National Home Price Index is lagging its three-month moving average is trickling down. The October 2022 reading, which was not published until the last week of December, includes sales completed in August, September and October. Some of the sales may be signed contracts by June.
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