The price of residential homes could fall by as much as 20% next year off the back of mortgage rate hikes that are reducing demand, said Ian Shepherdson, chief economist of Pantheon Macroeconomics.
With mortgage rates at their highest level since 2002, current homeowners are unlikely to purchase a new property unless out of absolute necessity, said Shepherdson, according to CBS News. Housing prices were up 13% annually in August, down from 15.6% annually in July, the largest monthly decline in annual price growth in the more than 27-year history of the S&P CoreLogic Case-Shiller Home Price Index, S&P reported Tuesday. (RELATED: Vacancies Skyrocket As Renters Abandon The Market)
“[W]e expect home sales to keep falling until early next year. By that point, sales will have fallen to the incompressible minimum level, where the only people moving home are those with no choice due to job or family circumstances,” said Shepherdson, according to CBS News. “Discretionary buyers are disappearing rapidly in the face of the near-400 [basis point] increase in rates over the past year.”
Home price declines accelerate:
U.S. home prices over the three months ending in August declined 0.9% compared to the three months ending in July.
(Prices in the three months ended July had declined 0.3% from the three months ended June.) https://t.co/gku4X7QgIf pic.twitter.com/NAu5JFlH8j
— Nick Timiraos (@NickTimiraos) October 25, 2022
Economists for investing giant Goldman Sachs predicted a more modest decline in housing prices of between 5% to 10%, according to an Oct. 6 report. Goldman economists noted that “the housing market is tight, mortgage quality is solid and a large proportion of the mortgages have a fixed rate.”
As of September, the median existing-home sales price hit $384,800, up 8.4% from $355,100 in September 2021, according to the National Association of Realtors. A 20% decline from this price would see the median existing-home sales price fall to $307,840.
Elevated mortgages contributed to a 38% annual decline in demand for new mortgages and an 86% annual decline in demand for refinancing as of the week ending Oct. 15.
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