As mortgage rates rise and home prices continue to hit records off tight supplies, buyers are being priced out of the market and the US housing market has cooled as a result.
Now economists are predicting that this slowdown will force price drops in nearly half of the markets across the country over the next year.
Analysts at Goldman Sachs’ Global Investment Research wrote this week, “While we think national home prices will likely avoid a correction in 2023, we expect 39% of metropolitan areas to experience price declines.”
In the report they predicted that the sharpest declines in home prices next year would be seen in the Western markets, such as, Denver, Phoenix, and Los Angeles, while prices would continue to appreciate in the East Coast markets like New York, Philly, and Boston.
Getting into the details, the report said, “In recent months, 9% of active listings have cut prices per Zillow; these price cuts have been most common in metros that saw a sharp run-up through 2020 and 2021, and may be a sign of further weakness to come. We view South/Southeast metros as likely better positioned than West metros, supported by strong demographic trends and more favorable affordability on an absolute basis.”
During the pandemic, the supply tightened when everyone was locked down, as the demand surged, particularly in markets near cities where there were trends toward allowing remote work, and buyers looking for second homes outside the city to escape to. Meanwhile in an effort to prevent an economic collapse, loose monetary policy made borrowing cheap.
As a result, prices skyrocketed. But now in some markets, they are returning back to historic norms. In Boise, Idaho in July, data from Redfin showed that 70% of homes for sale in the city dropped their prices as buyers retreated from the market.
According to data from Black Knight’s latest Mortgage Monitor Report, home prices were down 0.77% from June to July, a monthly decline not seen since January of 2011.
The report went on, “Looking across geographies, a tenth of metros experienced month-over-month declines in home values in July, concentrated in the West and Mountain West regions.”
Black Knight found that 85% of US markets have declined from their peaks through July, as one-third dropped more than 1% and one-tenth dropping 4% or more. Tappable equity, defined as the amount a homeowner can borrow against, while maintaining a 20% equity stake in the property, dropped 5% during the last two months.
Ben Graboske, president of Black Knight Data & Analytics wrote, “In some markets, equity pullbacks have quickly become fairly significant, with the five most equity-rich West Coast markets shedding 10-20% of previously available tappable equity from April through July.”
