The US housing market is in the midst of a major transformation. After two years of rising prices in the stratosphere, home prices have peaked and are on the way to falling.
But what homebuyers and homeowners alike want to know is: How low will prices go?
The short answer: Prices are likely to fall further, but not as much as during the housing crisis. From a 2006 peak to a 2012 low, national home prices fell 27%, according to the S&P CoreLogic Case-Shiller Indices, which measures home prices in the United States.
“It was different in 2008 and 2009 because this drop in prices was due to a push from sellers,” said Jeff Tucker, chief economist at Zillow. “Because of foreclosures and short selling, there were a lot of very motivated sellers who were willing to put up with losing their homes.”
In addition, this housing collapse came at a time when the number of homes for sale was four times higher than it is now. The current inventory remains well below pre-pandemic levels, which has increased competition for homes. This keeps prices relatively strong.
“I would be surprised to see prices anywhere drop below where they were in 2019,” Tucker said. There was some overheating in the housing market in 2021 through the spring of this year, driving prices higher than fundamentals would support. Now they’re going down.”
With mortgage rates more than doubling since the beginning of this year, home buyer accounts have changed dramatically. The principal monthly mortgage amount and interest on a $930 median home are up from a year ago, a 73% increase, according to Black Knight, a mortgage data company.
When you consider rising mortgage rates, along with rising home prices and wages that aren’t rapidly increasing, buying a home is now less expensive than it has been in decades, according to Black Knight.
But there may be some relief in sight for buyers.
Economists in Goldman Sachs We expect home prices to fall about 5% to 10% from their peak in June.
Wells Fargo recently predicted that median single-family home prices will fall 5.5% year over year by the end of 2023.
Economists at Wells Fargo estimate that the median price for an existing single-family home will be $385,000 this year, up 7.8% from last year, but growth will be much less than the 19% annual increase in 2021.
Economists expect the median home price to fall to $364,000, down 5.5% from this year. They expect prices to rebound and rise again in 2024, with the average price rising 3.3% to 376,000 by the end of 2024.
“The main driver of the housing market correction so far has been sharply higher mortgage rates,” Wells Fargo researchers wrote. “If our expectations for a Fed rate cut come true, then mortgage rates are likely to come down quite a bit as inflation pressures that boost real income growth subside. This should be followed by a modest improvement in sales activity, which will reignite home price hikes by 2020. 2024.”
Ultimately, how much the prices will drop will depend on where you live.
Unlike the price hikes during the pandemic that have sent home prices up in markets across the country, the calm will be more regional, Tucker said. He said the declines will be felt more deeply in places where there have been greater gains during the pandemic, many of them in the West and Sunbelt, including cities like Austin, Phoenix and Boise.
“Nationally, we could see a 5% drop from the peak,” Tucker said. “But prices will go down more in the West and there will be less drop in the Southeast.”
In September, month-on-month home prices in several pandemic hotspots, including Phoenix, fell 2.3%. Las Vegas, down 1.9% and Austin, down nearly 1%, according to Zillow.
Boise, Idaho, where prices have risen nearly 60% during the pandemic, is already in annual declines, with prices dropping 3.9% year over year in September, according to Zillow.
“A number of metro areas, especially in the West, will see some price drops year-over-year this spring,” Tucker said. “This would be the worst time to compare because this is the time when many markets have reached their peak.”
