“Poison Ivy.” That’s what housing bulls called analyst Ivy Zelman after she came out in 2005 and called the top of the housing bubble.
When toll brothers CEO Bob Toll tried to say that the housing market had bottomed out in 2006, Zelman joked again, “What Kool-Aid are you drinking, because I want some.” Of course, Zelman’s housing crisis fears proved more than correct, and all those who at the time thought that demographics would continue to drive Aught house prices were dead wrong.
Fast-forward to 2022, and Zelman once again has the housing bulls sweating.
In February, the founder of Zelman & Associates called the “top” of the real estate boom of the pandemic. She was in the money again. Just a few weeks later, skyrocketing mortgage rates pushed the US real estate market in a downturn. This summer, like housing correction intensifiedZelman provided a bearish assessment of US home prices to clients of his boutique housing research firm.
“So right now we’re getting a backlash from the change in direction from free money to now the increase in [mortgage] rates and inflation. So the market is primed for a pretty significant change. [price] correction. And we’re already seeing signs of that in recent months.” Zelman recently said in the Macro Hive Conversations podcast. “Inventories in certain markets, primarily West Coast, Southwest and Mountain states, are building at Mach speed.”
Zelman’s forecast model predicts that in 2023 US home prices will fall by 4%. Then in 2024, he predicts another 5% drop.
“As fast as [inventory levels] are increasing and demand is collapsing, we could see [home] price corrections But it is going to vary depending on the market”, says Zelman. “I don’t think this will end quickly. This will be a very pressured market at the national level in 2023 and 2024.”
Zelman’s outlook equates to an 8.8% drop in US home prices between 2022 and 2024. Historically speaking, that would make this one of the three steepest home price declines ever recorded. . The other two are those of the Great Depression and the Great Recession.
If Zelman’s prediction is true, Fortune we would have to change our brand of the Pandemic real estate boom— a period in which US home prices soared 43% in just over three years — to the pandemic housing bubble. That said, this forecast drop is more of a housing correction than a housing crash, something the industry says requires a 20% price drop. At least it would not be at the level of the last shock: from peak to valley, US house prices fell 27% between 2006 and 2012.
Not everyone agrees with Zelman’s bearish outlook, to be sure. During the next year, Zillow predicts US home prices to rise another 2.4%. Goldman Sachs predicts US home prices will rise 1.8% in 2023 and 3.5% in 2024. Meanwhile, companies like the Mortgage Bankers Association, CoreLogic, fannie maeY freddy mac all still predict low-single-digit home price jumps in 2023.
But Zelman isn’t the only housing bear, either. From peak to trough, Moody’s Analytics expects US home prices to decline 0% to 5% nationally. If a recession hits, Moody’s forecast moves from 5% to 10%, respectively. Research companies like John Burns Real Estate Consulting, Zonda, Capital Economics and Pantheon are also predicting falling home prices. Fitch Ratings believes that home prices could fall between 10% and 15% if the housing slump takes a worse turn.
Mark Zandi, chief economist at Moody’s, He says Fortune that factors including “record low vacancy,” “very good underwriting,” and “easy loans” won’t be enough to prevent a single-digit drop in home prices. However, it will prevent the US housing market from falling into a full-blown “housing crash”. This time, Zandi says, homeowners are in much better financial shape.
Keep in mind that when an economist or analyst says “US house prices,” they are not referring to your home. Across the country, Zandi says, the results of the ongoing housing fix will vary. In sparkling marketsLike Austin and Boise, Zandi predicts that home prices will fall between 5% and 10%. If a recession hits, Zandi waits Drops of 15% to 20% in the nation’s 187 significantly “overvalued” regional real estate markets.