Rates reach 6% as home prices drop—here’s how much more they could fall

Top Line

Current home sales fell for the seventh month in a row in August as rising interest rates continued to sideline potential home buyers, and prices are finally set to fall from record highs as experts anticipate the housing sector’s long-term affordability will be dented in the next few months. may help to do so. Problem.

After hitting record highs in June, current home prices fell for the second straight month and some… [+] Experts say they could fall 20% from their peak.

© 2022 Bloomberg Finance LP Key Facts

According to data released Wednesday by the National Association of Realtors, current home sales ticked down 0.4% from July to a seasonally adjusted annual rate of 4.8 million in August, down from 6 million a year earlier.

In a statement, NAR chief economist Lawrence Yoon called the housing sector “most sensitive” to Federal Reserve interest rate hikes, and said the softening in home sales reflects this year’s rising mortgage rates, which rose 6% last week. reached and inspired it. Monthly payments on new mortgages cost more than 55%, on average, hundreds of dollars each month.

Amid falling demand, the average current home price has fallen from a record high of $413,800 in June to $389,500 in August, breaking a five-month profit streak for the second consecutive month, to its lowest level since March. Is.

The 7.7% annual increase in home prices in August was the slowest year-on-year increase since June 2020, and NAR projects that current home prices could fall by more than 5% to $380,000 by the end of this year.

Read |  Trade setup for August 18, 2022: Things to know before the opening bell of the stock market

Others are eyeing heavy losses: In a Wednesday note, Pantheon Macro chief economist Ian Shepherdson said he expects a “continuous decline” in the sector through next spring, with prices reaching their peak by the middle of next year. can fall to 20% from peak and over time rent inflation, which climbed 7% year-on-year last month, came down the following year.

“Sales continue to decline in mortgage applications and point to further significant declines,” Shepherdson said, “predicting sales could drop 10% or so within the next two months and “even this may not even be lower”, “depending on what happens to mortgage rates in the next few weeks.

important quotes

“Inventory will remain tight in the coming months and even for the next few years,” says Yoon. are unwilling, leading to the need for more new home construction to boost supply.”

tangent line

On Wednesday, real estate brokerage Redfin reported that the ten areas where housing is cooling the fastest are almost all expensive West Coast markets, or places that attracted home buyers to relocate during the pandemic and Became much less affordable. These include San Jose, San Diego, Las Vegas, Phoenix and Denver.

chief critic

“Housing, in essence, is in recession, and everything related to housing is either in recession or will soon be, but the rest of the economy is not in recession because a regular housing slowdown is not enough to crash 90%. [gross domestic product] That is not housing,” Shepherdson says.

Further reading

Recession watch: Housing market collapse deepens as Fed officials warn ‘economy will slow’ (Forbes)

Read |  Lynch Asset Management Inc. Microsoft buys 100 shares of the company (NASDAQ:MSFT)

Falling home sales push prices below record highs (Forbes)

Source link