While it’s pretty clear that compressed housing affordability has caused some contraction in the US housing market, industry insiders remain divided on what a sustained home price correction will look like in 2023. Why? Demand and supply send mixed signals.
On the housing demand front, things remain subdued with mortgage orders (down 38% yoy) currently just below their lowest point during the housing crash of the 2000s. On the other hand, if financial conditions ease and mortgage rates drop in 2023, demand for homebuyers will increase. On the other hand, Housing demand spurt epidemic It would have had a pull-forward effect resulting in a slower-than-expected post-pandemic housing market.
On the housing supply front, things are still fairly tight nationwide. While higher mortgage rates corresponded with a significant drop in demand, they did not prompt sellers to rush for exits. In fact, new listings on Realtor.com are down 17.25% year over year. Many buyers who would normally be looking to move to a larger home have put off switching because they don’t want to give up the fixed 2% or 3% mortgage rates they have for their current home.
Do buyers (for whom low demand is a potential tailwind) or sellers (for whom tight supply is a potential tailwind) have the upper hand? One of the best indicators may be the direction of the stock – and The speed of change. At first glance, it might be easy to assume that inventory (i.e. active listings for sale) is just a measure of supply, however, it is also a measure of demand. If homebuyers pull out, and homes stay on the market longer, that could drive inventory levels up (currently up 46.8% yoy) even if new listings are down (currently down 17.3% yoy).
Let’s take a closer look at the inventory data for the 400 largest markets in the country.
After a brief spike in mortgage rates this spring, the overheated US housing market has cooled. This rapid slump in buyer demand finally gave inventory breathing room.
While national inventory levels on Realtor.com are up 46.8% year over year, the picture varies widely by market. Cities like Austin and Phoenix saw their inventory levels rise by 160.7% and 176%. Meanwhile, markets such as Chicago and New York remained essentially unchanged.
When it comes to inventory, speed of change matters. A sudden stock rally often signals a housing market that has moved into a full correction. Of course, we now know that’s exactly what happened this summer in markets like Austin and Phoenix, where home values have already fallen 10.4% and 8.1% from their peaks in 2022.
Why are inventory levels high in some markets and flat in others? Well, for starters, the basics.
Every quarter, Moody’s Analytics assesses whether local fundamentals, including local income levels, can support local home prices. If the regional housing market is “overvalued” by more than 25%, Moody’s Analytics considers it “significantly overvalued”. The pandemic housing boom saw the “overvalued” camp rise sharply from 3 markets in the second quarter of 2019 to 210 markets by the second quarter of 2022. These frothy markets include places like Boise (“overvalued” by 74%) and Austin (74%). “exaggerated” by 61%).
Fast forward to today, and those “grossly overrated” markets, in aggregate, are shifting faster. An influx of high-income remote workers has seen housing prices in boomtowns, such as Boise and Idaho Falls, decoupled from local income. Of course, that becomes a problem when the migration of remote workers slows and becomes a challenge The mortgage rate shock of 1981 It causes many potential domestic borrowers – who must meet the lenders’ strict debt-to-income ratios – to lose their eligibility for a mortgage. Low housing prices.
In all, there were 751,544 active listings on Realtor.com in November 2022. This is up from the 511,899 active listings in November 2021 and the 683,606 active listings in November 2020. However, the number is still well below the pre-pandemic active listing count of 1.14 million in November. 2019.
some companies, Such as CoreLogic and Home.LLC, I suspect that US housing prices will decline in 2023 as inventory declines. Those who inhabit bulls should reconsider their stance, the Morgan Stanley researchers say.
“The fact that we expect home prices to start declining year-on-year in March 2023 despite tight inventory reflects how unprecedented this affordability situation is in the market,” wrote Morgan Stanley researchers who expect US home prices to fall by around 10%. housing in the United States. Peak to trough though supply is still less than 6 months out of stock.
How can home prices fall even if inventory levels remain below pre-pandemic levels?
“When demand suddenly falls off a cliff, the absolute level of supply is not adequate. This is where monitoring the rate of change on both supply and demand separately is critical,” said Rick Palacios Jr., director of research at John Burns Real. Real estate consultants, he says luck. Investors represent the highest percentage of buyers ever [housing] course in many markets. The lion’s share of these buyers are now on the sidelines, some needing to sell due to excessive debt, and have really been taking a flyer that the price of the house continues to rise. Those days are now gone, and these sellers don’t offer [the] The same emotional/behavioral traits associated with the traditional owner-occupant, which have historically kept home prices somewhat on the negative side. Builders also account for nearly twice the historical base for market share when it comes to the supply of homes for sale in the system (the denominator there is resale supply plus the supply of new homes under construction and finished inventory). Market builders meet price while traditional owners are not so quick to cut prices.”
Moving forward, John Burns Real Estate Consulting expects the stock to rise further next spring. In terms of national home prices, the research firm expects a decline of 20% to 22% from peak to trough if affordability continues to be hampered by mortgage rates of 6% next year.
“It is very likely that we will see a spike in supply come spring, which is typical. The supply of new homes in particular should pick up, because we know that finished homes are increasing now and builders have a lot of unsold homes that are It’s still under construction and that works through the system,” Palacios says luck. “This will be the first spring selling season since 2008 with mortgage rates around 6%, so we expect a bumpy ride for sellers in general, especially if the economy is officially in a recession.”
When a group like Morgan Stanley or John Burns Real Estate Consulting say US housing prices, they’re talking about a national compound. Whatever comes next will certainly vary by market.
Of the nation’s 400 largest housing markets, 36 have returned to pre-pandemic housing levels. The searchable chart (in alphabetical order) above shows those 36 markets.
In theory, higher inventory levels could lower home prices in those markets.
Of the nation’s 400 largest housing markets, 364 are still below pre-pandemic inventory levels. The searchable chart (in alphabetical order) above shows those 364 markets.
While the Morgan Stanley researchers don’t believe that tight inventory will prevent a decline in home prices, they do believe that tight inventory levels will prevent a 2008-style crash.
“Although supply does not keep home price growth at zero, we believe it prevents the decline in house prices from becoming too large,” the Morgan Stanley researchers wrote.
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