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Fed’s housing market ‘reset’ officially kicks off second major home price correction in post-World War II era



In June, Federal Reserve Chairman Jerome Powell told reporters that the overheating U.S. housing market — which has seen U.S. home prices rise more than 40% in just over two years — needs to be “reset”. And higher mortgage ratesIt will gradually bring “balance” to the market, he said.

“We have seen [home] Prices have increased dramatically over the past few years. So that’s changed now…I’d say if you’re a homebuyer, someone or a young person looking to buy a home, you need a little bit. reinstall. We need to get back to a position where supply and demand got back together,” Mr. Powell said.

While Powell isn’t sure what the Fed’s housing “reset” did means that for house prices, Luck speculate it means the price will fall. Looks like we were right.

According to the latest Case-Shiller report released on Tuesday, home prices in the US fell another 0.8% in September. That marks the third consecutive monthly home price drop since Powell’s June announcement. Prior to 2022, the seasonally adjusted Case-Shiller National Home Price Index had not posted a monthly decline since the housing crash bottomed in 2012.

This latest Case-Shiller report—showing that U.S. home prices have fallen 2.2% since June—means we’ve moved to second largest home price adjustment after World War II. On paper, it’s tied to 2.2% decrease from May 1990 to April 1991however, since the index is a three-month average, we know the October numbers will cross that mark. That said, it’s still far away a 26% decline from peak to trough occurred between 2007 and 2012.

How does this 2.2% decline be considered the second major correction in the post-World War II period? In short, historically, home prices on a national basis have been fairly stable. Sellers resist going below market price unless the economy forces them to act.

“I think the religion that people had from 1946 to 2008, that house prices are always going up, is dead. My parents believe it’s really unthinkable for [home] discount,” Glen Kelman recently said Luck. The housing crash of 2008, he said, broke that “religion” and taught buyers and sellers that home prices can indeed fall. “So everyone replied [now] arrive there [correction] with almost PTSD, and they retreat much faster.

It’s not just ordinary Joes who know prices could drop—2008, for example, also made organizers and builders more wary. Those companies are a big reason why home prices are falling so fast right now.

“When shiitake mushrooms hit the fan, you [investors] want to go out first. The way to do that is to find out where the discount is the lowest and lower than 2%. And if it doesn’t sell by the end of the first week, move it down [again]”Kelman recently said Luck. In his view, real estate investors, including Redfin’s iBuyer business and builders, are helping to push prices down faster this time around.

Another reason why prices can drop so quickly is simply because House prices rose too high, too fast during the pandemic. And now mortgage interest rate There has also been a spike, with many buyers either being outbid or completely unable to qualify for a mortgage.

When asked in September to clarify his June housing “reset” remarks, Powell told reporters that the US housing market has entered a “tough period”. [housing] adjust.” While the housing adjustment has clearly arrived, it has barely happened nationally.

Among the 20 major US housing markets tracked by Case-Shiller, home price declines ranged from -0.55% in Atlanta to -10.4% in San Francisco. (Chicago and Cleveland remain at peak prices in 2022.)

Not just San Francisco: The western half of the country, which includes markets like Seattle (down 9.16%) and Phoenix (down 3.86%), is clearly at the heart of the ongoing home price correction . What’s happening? The western half of the country, where affordability is a bigger issue, has increased vulnerability to interest rate shocks. In markets like San Francisco and Seattle, tight currencies mean their high-tech job centers are getting back up and running just as tech stocks plunge. Meanwhile, mortgage interest rates are higher has pushed vibrant boom markets like Phoenix to the forefront.

Corrections continue to be milder in the Northeast and Midwest. Markets like New York and Detroit are down just 1.58% and 0.81% from their respective peaks. Since the housing cycle ends this summer, those markets aren’t flooded with inventory from iBuyers and builders. That has given sellers in markets like New York and Detroit a little more breathing room.

It is true that we are in the midst of a housing adjustment. It’s also true that homeowners in general are still doing pretty well. In fact, “good” can be an understatement.

So far, the 2.2% drop in prices for the June-September housing correction is only slightly down from the massive 41.29% price increase of the pandemic housing boom. . Since March 2020, home prices are still up 38.33%.

Not only are homeowners protected from rent shocks, many are also benefiting from refinancing at 2% or 3% mortgage rates during the pandemic.

Where do we go from here? It depends on who you ask.

Economists at Zillow believe the house price correction will end in January 2023, and we should see a 0.8% increase in home values ​​over the next 12 months. Meanwhile, economists at Morgan Stanley, Goldman bookand Mood analysis thinks house prices will fall about 10% from peak to trough. While companies like Zonda and KPMG think we’re headed for a top-to-bottom 15% drop in US home prices.

Of course, when zillow or when Moody’s says “U.S. home prices” they’re talking about the national aggregate. Whatever happens next is bound to change with the market.

Want to be updated on housing correction? follow me on Twitter in @NewsLambert.

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