The housing market hasn’t seen a climate like this in a long time – but when exactly is a big question. Looking at existing home sales, things haven’t been this bad since the depths of the Great Recession in 2010, when home prices plunged 15% in September, sending transaction volume to a 13-year low, prompting Zillow to warn of a “deep freeze.” ”. Back to spring. Other economists, such as First American’s Mark Fleming and Bank of America Research’s Jesseo Parker, see a situation reminiscent of the “housing recession” of the 1980s. Morgan Stanley took stock of the market earlier this week and found more pain ahead for homebuyers: Home prices are rising as much as 5% nationwide, reversing earlier calls for home prices to fall amid high mortgage rates. Zillow takes the opposite tack.
After calling U.S. home prices bottom in February, Zillow economists raised their home price forecasts every month through August. At the time, they predicted house prices would rise 6.5% over the next 12 months. However, last month they issued a downward revision. This month, they did it again.
Zillow Economist expected this week House prices are expected to rise 2.1% between September 2023 and September 2024. By comparison, they forecast last month that house prices would rise 4.9% between August 2023 and August 2024.
“Zillow’s forecast for the value of a typical home nationwide was revised down this month due to an unusual month-over-month decline in September and climbing mortgage rates,” they wrote this week.
Zillow economists have entertained the possibility that a resilient labor market will mean interest rates rise longer than expected. As interest rates firm, the housing market has lost some steam.
“Rising mortgage rates are putting pressure on new listings, with ‘rate locked’ homeowners mostly choosing to keep the relatively low monthly payments associated with their current homes,” Zillow economists wrote.
They now expect national house prices to rise 3.3% in 2023, down from the 4.3% forecast last month.
“While many homebuyers are priced out of the market or have limited affordability, there are enough active buyers to maintain competitive pressure on the few homes available for sale,” they note.
Morgan Stanley recently made a bigger change to its 2023 outlook. While analysts had previously expected house prices to fall this year, they now say they could rise by up to 5%. A research note earlier this week noted that the reversal comes as mortgage rates continue to rise.
30-year fixed mortgage rates hit 8% this week according to Mortgage News Daily. Interest rates have not been this high in decades.
“Interest rates are likely to stay around this level in the final months of the year, especially if the Fed raises rates again before the end of the year,” Mark Fleming, chief economist at Fortune 500 financial services firm First American, told Reuters wealth this week.
The Fed still retains the possibility of further interest rate hikes. “The risk that they need to do more is very high,” Andrew Levin, a former senior adviser to the Federal Reserve and now a professor at Dartmouth College, recently told Bloomberg.
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