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What a housing market correction could mean

by Ozva Admin

The US housing market could be headed for a correction after more than two years of massive price growth that has been more recently offset by the Federal Reserve’s attempt to curb inflation by raising interest rates. interest rates, a decline in the number of homes under contract, and a record slowdown in monthly price growth in September of 2.6 percent.

A correction would allow buyers to spend more time in the market and possibly have less competition for homes, but experts say recent price declines may not be enough to offset high mortgage rates combined with historic price increases during the pandemic.

National housing market corrections are rare, economists told The Hill. Although there is no set definition, experts said the market is in a correction when changing conditions cause home prices to fall.

“We are seeing that now that home values ​​nationally have fallen a bit from their June peak, part of a rebalancing of the housing market as potential buyers pull back due to high costs and sellers react by lowering your listing price or accepting a lower offer on your home,” Zillow senior economist Jeff Tucker told The Hill in an email.

“But home values ​​are nowhere near a 10% decline from peak levels nationally,” Tucker said, noting that a stock market correction refers to a decline of 10% or more from the maximum levels.

Median home prices fell 0.4 percent in September to $358,283 from their June high of $359,719, according to Zillow data.

Yelena Maleyev, an economist at KPMG Economics, told The Hill in an email that the recent price declines can be seen in the context of unusually fast price growth over the past two years.

“Due to pandemic-related distortions, house prices have grown at a historically fast rate in recent years. This has led to many markets across the country being considered overvalued,” Maleyev said.

“According to Moody’s research, more than half of the country’s real estate markets are overvalued as of the middle of this year. This leaves plenty of room for those markets specifically to see their home prices come back down to Earth,” he added.

Some of these price drops have been seen in metro areas where prices have skyrocketed during the pandemic, and especially those where remote workers flocked for lower costs of living.

Data released last week by the National Association of Realtors showed that home prices rose in most US metropolitan areas last quarter. Seven of the top 10 metropolitan areas that experienced the largest price gains were in Florida, where the typical price increase was more than 18 percent, and half of the most expensive markets in the country were in California.

Nationwide, prices for an existing median-priced single-family home increased 8.6 percent from last year to $398,500, despite the current slowdown in prices.

Even though buyers are getting some relief from the slight price declines, rising mortgage rates continue to put many Americans away from homeownership.

Since the Federal Reserve began its series of aggressive interest rate hikes, mortgage rates have more than doubled. The rate for a 30-year fixed-rate mortgage rose back above 7 percent last week after dipping slightly a week earlier.

These rates are increasing payments, and recent data shows that average monthly mortgage payments are up nearly 50 percent from pre-pandemic levels.

Median monthly payments have increased by more than $600, bringing the monthly payment for a typical single-family home to $1,840 after a 20 percent down payment.

Federal Reserve Chairman Jerome Powell told reporters following the central bank’s latest rate hike earlier this month that the agency is aware of the negative impact Fed activity is having on the housing market. .

“Housing is significantly affected by these higher rates, which are really back to where they were before the global financial crisis. They are not historically high, but they are much higher than they have been,” Powell said. “We understand that that is really where a very large effect of our policies is.”

High rates also mean that a price correction may not be a huge benefit to buyers for two main reasons, Taylor Marr, deputy chief economist at real estate company Redfin, told The Hill.

“The first is that any decline in home prices so far has not yet fully offset rising mortgage rates, leaving homebuyers with a much higher monthly mortgage payment than when rates were higher. lows at the beginning of the year,” Marr said in an email.

“If home values ​​start to drop enough to offset the rate hike, buyers will also be discouraged from buying a home that is falling in value; nobody wants to catch a falling knife and risk being the biggest fool,” he added.

Still, there could be a silver lining for buyers, even if high mortgage rates offset some of the positive impacts of price declines.

“This small price drop is not helping buyers get ahead. The impact of higher mortgage rates far outweighs the impact of slightly lower prices,” Tucker said.

“The silver lining for buyers is the reduced competition as opposed to anything related to the cost of a home,” Tucker added. “Buyers who can overcome affordability hurdles and stay in the market will have less competition and more time to consider their options, which is a radical departure from last year when bidding wars were the norm.”

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