Bạn đang xem: Home prices will fall in 2023, but affordability will be at its worst since 1985, research firm says
Between June 2022 và the end of 2024, experts at Morgan Stanley are predicting around a 10% drop in average national housing prices. At first glance, these numbers might seem worrisome, but it’s important to consider the context.
First, this cấp độ of market cooling doesn’t necessarily indicate a “crash.” Typically, when we see a housing market crash, we’d expect to lớn see a reduction in pricing of at least 20%. This is not anywhere near what experts are currently predicting – unless we go into a deep, dark recession that sparks high unemployment rates. Even then, it likely wouldn’t be as bad as 2008.
There are several factors buffering the market from freefall. Let’s take them into consideration before we review the cities which have been hit the hardest.
The market was in an unsustainable rally for two years
Home values have skyrocketed since the pandemic began. From December 2019 through June 2022, prices rose 45%. Even after accounting for recent price drops, home prices have increased 38% since March of 2020. This cấp độ of growth was unprecedented & unsustainable. At some point it had to slow down.
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The fact that it was unsustainable is one of the very reasons it is slowing down. The housing market has significantly outpaced wage growth, so even though we’re in the midst of a housing shortage, far fewer people can afford lớn actually buy.
America’s housing shortage isn’t getting better
The backdrop lớn this is that America is, and has been, in the midst of a housing shortage – even prior lớn the pandemic. To fix this problem, experts at Freddie Mac and Up for Growth as recently as 2021 estimated America needs 3.8 million new homes. If you ask the National Association of Realtors, that number may be closer to lớn 7 million new homes.
Yet, new construction is slowing down. Home starts were down 8.8% year over year between October 2021 và October 2022, & applications for permits for new builds were down 10.1% over the same time period.
TryqAbout Q.ai"s Inflation Kit | Q.ai - a nhanluchungvuong.edu.vn companyThis means that any decrease in home prices over the next year likely has a floor. While less people who want khổng lồ buy can due to lớn high prices, the supply shortage will hopefully keep supply from greatly outpacing demand.
The result of this equation isn’t pretty for renters – a quarter of whom already pay more than một nửa of their income lớn their current landlord. Home prices may not come down to lớn a point where these folks can afford to lớn buy.
But for homeowners, it may provide some small assurance that they’re not at as high of a risk of losing their home. Even over the past few months as home prices have started lớn cool in most markets, foreclosure rates still haven’t reached pre-pandemic levels. Và the market circumstances that caused so many to end up upside down on their mortgages in 2008 aren’t present today.
Where are home prices dropping fastest?
That doesn’t mean home prices won’t come down at all. In fact, according khổng lồ the S&P Case-Shiller Index, trang chủ values were down 2.6% between June & September of 2022. They were still up 7.81% year over year, but the clip of the short-term decreases have been notable.
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Most of the metro areas the S&P considers experienced a decrease over the three-month time period in 2022, but these cities saw the biggest drops:
San Francisco: - 10.36% Seattle: - 9.55% San Diego: - 7.24% Los Angeles: - 5.61% Denver: - 5.60% Dallas: - 4.34% Portland: - 4.25% Las Vegas: - 3.69%Of the two metros that were still experiencing pricing increases over a three-month period, they all saw pricing decreases from August to September of 2022.
Why are prices dropping more quickly in these cities?
The best case study might be the market that’s seen the largest price declines: San Francisco.
The San Francisco market is facing the same issues as the rest of the country: Unaffordable trang chủ prices & high (though slightly less high in November) interest rates. The biggest difference is that San Francisco had further to fall.
San Francisco has long had one of the most expensive housing markets in the country. Some of the highest prices in the nation have the furthest to fall.
San Francisco in particular has experienced a mass exodus since the pandemic began, with the county losing about 6.7% of its population between July 2020 and July 2021 alone. One explanation for this is as more positions became remote starting in March 2020, tech workers – who are heavily concentrated in this region – have reaped some of the most opportunities khổng lồ work from home.
And why pay for a trang chủ in one of the most expensive real estate markets in the nation when you could live and work anywhere else?
While some workers are returning to lớn the bay area as some companies remove flexible working opportunities, the effects of mass remote work migrations have still made a meaningful mark on the city’s real estate market.
The other cities on the list, from Seattle to D.C., have experienced similar phenomena, though the situation of each market is partially unique.
For example, New York trang chủ prices have declined, but not as much as those in San Francisco. Companies based in thành phố new york have implemented more mandatory return-to-the-office policies, which have forced more people back into the city. This may be a partial cause for its softened price decreases when compared lớn San Francisco.
The bottom line
The housing market is likely to thua trận value through 2024, but it’s more of a market correction than a market crash. Because America has a housing shortage, demand is likely to lớn keep trang chủ prices from descending into oblivion.
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