The U.S. housing market to see second biggest correction of the post-WWII era—when to expect the home price bottom

Homebuilders and economists alike saw the housing bubble of the 2000s brewing, they just didn’t think it would burst. His reasoning is that, at the time, home prices hadn’t really fallen since the Great Depression era.

“I think the religion that people had from 1946 to 2008, that house prices were always going up, is dead. My parents believed that it was literally inconceivable for [home] prices go down.” Redfin CEO Glenn Kelman says Fortune.

That “religion,” of course, collapsed after the bursting housing bubble caused US home prices to drop a staggering 27% between 2006 and 2012. Knowing that home prices can falling, Kelman says, is why builders and flippers started cutting prices faster this year. time around Once the market changedThey wanted to go out first.

“Friends [are] answering [in 2022] to that with almost PTSD, and they regress much faster,” says Kelman.

Starting in August, the lagged Case-Shiller index it showed that US house prices had fallen 1.3% from their June 2022 peak. That marks the first drop since 2012. It is also likely to be well below the actual drop. Just look at the 7.6% decline in US home equity in the third quarter, as reported Friday by black knight. That’s the biggest drop in home value ($1.3 trillion) ever recorded, and the biggest percentage drop since 2009.

How far will house prices fall? It depends on who you ask.

researchers in Goldman Sachs expects US home prices to decline between 5% to 10% from peak to valley—with its official forecast model predicts a drop of 7.6%. If it comes to fruition, it would exceed the 2.2% drop between May 1990 and April 1991. That would make this ongoing correction the second largest house price decline of the post-World War II era.

“Economists at Goldman Sachs Research say there are risks that housing markets could fall more than their model suggests…based on signs of home price momentum and housing affordability.” Goldman Sachs writes on its website.

That said, home prices could take a while to bottom out. In fact, the Goldman Sachs model estimates that US home prices won’t reach that point until March 2024.

researchers in moody’s The analyzes are a little more pessimistic.

He forecasts a 10% decline in US house prices.with prices bottoming out in late 2025. However, if a recession hits, Moody’s Analytics would expect a larger 15% to 20% drop from peak to trough.

Of course, when groups say “US house prices,” they are talking about a national aggregate. At the regional level, the researchers acknowledge that changes in home prices vary significantly by market. In bubbling markets Like Boise and Nashville, Moody’s forecasts a drop of about 20%. Meanwhile, in Chicago, a relatively tame market during the boom, house prices are expected to fall by less than 3.6%. (You can find your forecast for 322 markets here).

Why are house prices already starting to rise? It boils down to what Fortune calls pressurized affordability. Spiking mortgage rates coupled with a historic 43% rise in US home prices during the real estate boom of the pandemic it has simply put the monthly payments beyond what many potential borrowers can afford.

When all is said and done, Moody’s Analytics Chief Economist Mark Zandi believes this ongoing housing correction will boost national housing basics back in line with historical norms.

“Before prices started going down, we were overvalued [nationally] by about 25%. Now, this means that prices will normalize. Affordability will be restored. the [housing] the market will not be overvalued after this process is over,” says Zandi.

Want to stay up to date on home correction? Follow me in Twitter a @NewsLambert.

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