“I would say if you’re a home buyer, someone or someone new looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and inflation is back to low levels and mortgage rates are back to low.” It is clear that the Fed’s “housing reset” will give homebuyers more choice (i.e. more inventory) and more space (i.e. less bidding wars). The question mark — which Powell acknowledged in June — is will it push home prices lower? Historically speaking, home prices remain stable until the economy forces the sellers’ hand. To better understand where home prices may be headed, Fortune reached out to CoreLogic to see if the company would provide us with its updated August assessment of the nation’s largest regional housing markets. To determine the likelihood of regional housing price declines, CoreLogic evaluated factors such as income growth projections, unemployment projections, consumer confidence, debt-to-income ratios, affordability, mortgage rates loans and inventory levels. CoreLogic then placed regional housing markets into one of five categories, grouped based on the likelihood that home prices in that market will decline between June 2022 and June 2023. Here are the groupings the real estate research firm used for its analysis of August:
Very High: More than 70% chance of the price falling High: 50%-70% chance Medium: 40%-50% chance Low: 20%-40% chance Very low: 0%-20% chance
Between June 2022 and June 2023, CoreLogic projects that US home prices are poised to increase by 4.3%. But this is national. Regionally, some markets are at high risk of falling prices. Among the 392 regional housing markets it reviewed, CoreLogic found that 125 markets have a greater than 50% chance of seeing local home prices decline over the next 12 months. In July, CoreLogic found that 98 markets had more than a 50% chance of home price declines over the next 12 months. In June, 45 markets were at risk. In May, just 26 markets fell into this camp. Why does CoreLogic keep lowering its risk rating? It boils down to deteriorating US housing market data. On a year-over-year basis, existing home sales and new home sales fell 20.2% and 29.6%, respectively. This is the sharpest contraction in housing activity since 2006. “The potential for a decline in home prices continues to intensify as mortgage rates hit a new high in June and demand for homes fell significantly,” Selma Hepp, deputy chief economist at CoreLogic, tells Fortune. “Downside risk remains concentrated in areas that have seen exceptionally high house price growth over the past two years, but not the same level of population and income growth, and in areas that are historically more sensitive to rising mortgage rates. loans and the signs of recession”. Of those 392 regional housing markets CoreLogic measured, 67 markets in August have a “very low” chance of home prices falling next year. A further 133 housing markets are in the ‘low’ group and 67 markets in the ‘medium’ range. CoreLogic put 85 markets in the “high” camp. CoreLogic categorized 40 markets as having a “very high” chance of home prices falling over the next year. This includes major markets such as Boise, San Francisco and Lake Havasu City. The real estate industry should always be on high alert when the Federal Reserve moves into inflation-fighting mode. After all, the sector is the most rate-sensitive sector of the economy. That said, some regional markets should be on higher alert than others. Historically speaking, when a housing cycle “turns”, it is usually the significantly “overvalued” housing markets that are most at risk of home price corrections. According to CoreLogic, 75% of the nation’s regional housing markets are “overvalued” relative to underlying economic figures. Many of these bubble markets, like Boise, are at the highest risk of a price correction. However, there is one big exception: San Francisco. While CoreLogic says the Bay Area is at “very high” risk of falling home prices, it says the market is not overvalued. What happens? High-cost tech hubs like San Francisco and Seattle are being hit hard by the tech slowdown. Not only are high-end real estate markets more rate-sensitive, but so are their tech sectors. A growing chorus of research firms agrees with CoreLogic that markets like Boise and San Francisco are at risk of falling home prices. However, CoreLogic placing Phoenix – a market where inventory has soared to 2019 levels – as “low risk” for a price drop is untenable. Research groups such as Moody’s Analytics and John Burns Real Estate Consulting predict home prices will fall in Phoenix next year. “People don’t expect honors [in Phoenix] to increase quickly, or not at all, anymore. The median home price in metro Phoenix has fallen over the past two months. If prices continue to fall long enough, people will eventually expect prices to continue to fall into the future, and then we could see the other side of the 2021 housing market,” John Wake, an independent real estate analyst with based in Phoenix. . Thirsty for more housing data? Follow me on Twitter at @NewsLambert. Join the Fortune Features email list so you don’t miss out on the biggest features, exclusive interviews and surveys.
