Historically, home prices have rarely fallen year after year. Unless the economy forces the seller’s hand, it usually won’t back down.
Of course, we recently saw the U.S. housing market enter one of those rare periods where national home prices actually fell — with U.S. home prices down 2.5% between June and November — and we’re just months away from seeing negative home values on a year-over-year for the first time since the housing crash fell in 2012.
What’s up? Rushing demand during the Housing Boom Pandemic, which saw US home prices rise 41% between March 2020 and June 2022, coupled with last year’s historic mortgage shock, has “pressed” housing affordability. Some will buy homes already priced out, while millions of other borrowers – who must meet strict debt-to-income ratios – have lost their mortgage rights. The clear pullback in housing demand has translated into falling home values.
The big question going forward is whether the house price correction will fade or continue?
To learn more about regional house prices this year, fortune reached out to CoreLogic to see if the company will provide an assessment of the largest regional housing market in January. To determine the likelihood of regional home price declines, CoreLogic evaluates factors such as income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates, and inventory levels. CoreLogic then places regional housing markets into one of five categories, grouped according to the likelihood that home prices in that particular market will decline between November 2022 and November 2023.
Here is a group of real estate research firms used for the January analysis:
- Very high: More than 70% chance of house prices falling between November 2022 and November 2023
- upper: 50%-70% chance
- Medium: 40%-50% chance
- less: 20%-40% chance
- Too little: 0%–20% chance
Of the 392 regional housing markets measured by CoreLogic, zero markets currently have a “very low” or “low” chance of home price declines between November 2022 and November 2023. Only one market has a “moderate” chance of falling prices. Meanwhile, CoreLogic put 53 markets in the “high” camp and 338 markets in the “very high” odds camp.
Simply put: The January assessment found 391 markets (ie markets in either the “high” or “very high” risk group) have a greater than 50% chance of reading negative home prices annually in November 2023.
This high risk does not come out of nowhere. The risk of a decline in house prices has been increasing for a long time.
Back in November, 354 regional housing markets had a “high” or “very high” chance of house price declines over the next 12 months. In October, 335 markets were in the “high” or “very high” risk camp. In August, there were 125 markets at risk. In July, there were 98 markets at risk. In June, 45 markets were at risk. And in May, only 26 markets (see chart below) fell into the “high” or “very high” risk camps.
Why is it possible that house prices have fallen so much in the past year? Yes, mortgage rates are higher in 2022 than industry insiders expect.
“While the cost of borrowing continues to rise and the demand for housing decreases in the winter of 2022, housing prices in most markets also contracted. declined to be seen in the summer and immediately after the increase in mortgage rates. Nationally, housing prices were down 2.5% from the spring peak with the market on the West Coast and in the Mountain West saw a greater cumulative decline of 8% to 12%. , only eight markets have seen housing prices decrease on a year-over-year basis. With more contracted prices, the metro is now considered overvalued- especially those West Coast market where a cumulative decline has been recorded. Looking ahead, the new relief in mortgage rates will likely spur some lost homebuyer demand and help invigorate house prices as well,” Selma Hepp, deputy chief economist at CoreLogic, told fortunee.
One final point about the CoreLogic analysis.
Just because the regional housing market has a “high” or “very high” probability of house prices falling between November 2022 and November 2023, does not guarantee that house prices will fall. After all, even though CoreLogic has 99% of its regional markets labeled as having a “high” or “very high” risk of falling home prices, the company still posted a 2.8% increase in national home prices between November 2022 and November 2023.
If you want to see how regional house prices have changed over the past six months, go here.
Want to stay updated on home improvement? Follow me on Twitter @NewsLambert.
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