Real estate prices have declined over the past several months, but there could be much more to come, data and some experts indicate.
The median home price has dropped by about 7 percent since its peak in June. It is still up by about 6 percent since October last year and more than 35 percent up since early 2020, according to data from Zillow, a listing site.
Other market metrics have recently dropped far more precipitously though. Sales volume, for instance, is down more than 24 percent since last year. Construction started on less than 120,000 private housing units in October, down from more than 150,000 in April, according to Census Bureau’s seasonally adjusted data (pdf). Prices of lumber, the most common residential construction material in America, dropped by nearly 70 percent since February and are now roughly at the early 2020 level.
The housing market has been pummeled by the Federal Reserve’s lifting of interest rates this year, which have boosted mortgage rates from less than 3 percent in September last year to more than 7 percent in early November. The rates have since eased to some 6.5 percent.
This indicates that the market has yet to reach its bottom.
“We expect a drop of 15-to-20% over the next year, in order to restore the pre-Covid price-to-income ratio,” wrote Ian Shepherdson, chief economist at the Pantheon Macroeconomics in a note last week.
Fannie Mae’s Economic and Strategic Research (ESR) Group expects home prices to hit a low point in the second quarter of next year with a recovery the year after.
One major factor is that 80 percent of mortgage holders have locked in rates of at least two percent lower than the current rate which makes them unwilling to look for a new house, the ESR said in a recent forecast.
“The economy continues to slide toward a modest recession, which we anticipate will begin in the new year, with housing leading the slowdown,” said Doug Duncan, chief economist at Fannie Mae.
By Petr Svab
