When will real estate prices go down? These economists say they’re bracing for a ‘prolonged downturn’ – and a sharp drop in home values

By Aarthi Swaminathan

Most Economists Forecast Slower Home Price Appreciation, Others Forecast Bigger Price Declines

The real estate market is battered, with mortgage rates exceeding 7%.

“Rates are continuing to rise and will continue to rise until then,” Christine Cooper, chief U.S. economist and managing director of CoStar Group, told MarketWatch in an interview.

But with home prices continuing to be high, it’s really hurt affordability, she added, and pushed buyers out, which will hurt home sales.

And “it’s going to continue until we see price drops,” Cooper said. “And we are already seeing signs.”

Sellers remained hopeful the situation might improve, Ali Wolf, chief economist at Zonda Research, a housing market research platform, told MarketWatch in an interview on the Barron’s Live podcast.

“What we’re hearing from the seller side is that they’re feeling really nervous seeing demand drop off,” Wolf said.

Builders and real estate agents initially thought demand would slow and then recover, she added, but as rates continue to climb and consumers pull back, they see the writing on the wall.

In a recent survey by Fannie Mae (FNMA), homebuyer sentiment fell to its lowest level since 2011: 75% of respondents said now was a bad time to buy a home.

They say “It’s not just a few months, it can be a prolonged downturn in the housing market,” Wolf said.

Will house prices fall in 2023?

Most economists expect home price appreciation to slow, and it is. In fact, house prices were down slightly month over month.

But others are increasingly talking about expecting 5-10% corrections.

The median price for an existing home was $389,500 in August, the National Association of Realtors said.

Moody’s Analytics’ Mark Zandi expects national house prices to fall 10% from peak to trough, and 20% in a recession. “Bind up,” he wrote on Twitter (TWTR).

“Assuming rates stay close to their current 6.5% and the economy steers clear of recession, national house prices will fall nearly 10% from peak to trough,” he added. “Most of these declines will happen sooner rather than later. And house prices will drop 20% in a typical recession.”

Ivy Zelman, CEO of Zelman & Associates, expects national home prices to fall 4% in 2023 and 5% in 2024.

One developer, Don Peebles, CEO of Peebles Corporation, expects home prices to fall 15-20% over the next 18 months, The Real Deal reported on Friday.

Goldman Sachs expects home prices to fall 5-10% from the peak.

Wolf of Zonda expects a 5%-10% correction.

“We think some of the markets will have a more dramatic decline – some of the markets that have had a really massive upside,” Wolf explained. “But they don’t go anywhere like the Great Recession.”

Parts of the country like the Coachella Valley, Salt Lake City, parts of Denver, Boise, Las Vegas, Phoenix, Austin, all saw prices rise very sharply, she added.

CoStar’s Cooper said she sees prices falling not only in pandemic boom cities, but also in expensive markets like San Francisco, San Jose, San Diego and Seattle.

“There was a belief among investors and even among the development community that prices could only go up indefinitely,” Wolf said, “and they had to build the houses because we’re so undersupplied.”

She added that there is a “limit to what people are willing or able to pay”.

Do you have ideas on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at [email protected]

-Aarthi Swaminathan

 

(END) Dow Jones Newswire

10-15-22 1315ET

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