The US housing market has seen a series of ups and downs throughout the year, with prices moving at an unpredictable wave.
Two years ago, the market saw a comfortable rise in prices.
Since then, house prices have peaked but are now slowly dropping.
Lower housing prices
Potential buyers and homeowners are wary of the movement in the market and wonder how much prices will drop.
Many experts believe it will drop further but estimate it will not drop as low as it has in the past years.
The S&P CoreLogic Case-Shiller Indices is a tool that measures US home prices.
He reports that national house prices fell 27% between the high point in 2006 and the trough in 2012.
Jeff Tucker, a 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.”
Inventory and mortgage rates
Tucker also points out 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 competition for housing.
It also keeps prices high.
Mortgage rates have more than doubled since the start of 2022.
The doubled mortgage rate changed the calculations for a home buyer dramatically.
Black Knight is a mortgage company and has found an interesting report.
There is a 73% increase as monthly principal and interest mortgage payments on the mid-priced home have increased by $930 since last year.
How low will housing prices drop?
Black Knight reports that buying a home is more expensive today than it has been for decades due to factors such as:
- Increasing mortgage rates
- Elevated home prices
- The slow-moving wage increase
Although the factors seem intimidating, some relief currently awaits buyers.
Goldman Sachs economists expect home prices to fall about 5-10% from the June high.
Wells Fargo recently projected the national median single-family home price to drop 5.5% year-over-year by the end of 2023.
Economists expect the median home price to fall to $364,000, down 5.5% from this year.
They also predict that house prices will recover and rise in 2024.
Prices will increase by 3.3% to reach 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.”
The influence of location
Depending on the location, house prices will drop.
Jeff Tucker says the cooling will be regional relative to pandemic price hikes.
At the time, house prices rose in markets across the country.
The declines will be most noticeable in the places with the highest gains during the pandemic.
Tucker was referring to the West and the belt of the sun, 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 month-to-month in areas affected by the pandemic, including:
- Austin, down nearly 1%
- Las Vegas, down 1.9%
- Phoenix, down 2.3%
Prices in Boise, Idaho, have risen nearly 60% during the pandemic but are already seeing a yearly decline.
Prices fell 3.9% year over year in September, according to Zillow.
“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.”