The housing market is in a recession, many economists say, but when will home prices come back down to earth? Soon, one economist says.
With mortgage rates edging higher, buyers are pulling back. More sellers are cutting prices on their listings and offering more concessions to entice buyers.
With this backdrop, home prices will soon undergo a “correction,” Mark Zandi, chief economist at Moody’s Analytics, told MarketWatch.
But correction does not mean anything close to what happened in 2008. “Crash is what happened back in the financial crisis — that was a crash,” he said. “That’s not what we’re gonna have here.”
Zandi appeared on CBS News
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last month forecasting average home prices to “stall completely.”
First-time buyers are “locked out” of the market, unable to afford rising mortgage rates, he said. The 30-year mortgage is at 5.66% as of Thursday. A year ago, the 30-year was at 2.79%.
Investors are also waiting on the sidelines for prices to come down. As buyers pull back, home sales have fallen considerably.
“‘Crash is what happened back in the financial crisis — that was a crash. That’s not what we’re gonna have here.’”
“The next thing to happen will be for house prices to adjust,” Zandi explained, “and we will see some price declines likely nationwide.”
He expects declines in the low-single digits for the most part, around 5%.
But market forces — and life circumstances that require sellers to sell their home regardless of the market — will gradually push prices down.
For hot pandemic boomtowns “that were previously juiced up in the west and particularly mountain west and south to the southeast,” Zandi added, “we’ll see some meaningful price declines.”
A $500,000 home in Boise, Idaho, may see prices fall between 10% to 15%, Zandi said. He also sees large price corrections in other once-hot cities like Charlotte, N.C. and Austin, Texas. He also said Phoenix, Ariz. is seriously “overvalued.”
Some of these markets already showing signs of turning. In late August, Redfin noted that 70% of homes listed for sale in Boise had already had their prices cut. Denver, Salt Lake City, and Tacoma, followed.
In early September, Redfin said that price pressures were becoming more pervasive nationwide. For the first time since March 2021, the company said average home sold for less than its list price.
Realtor.com said that one in five homes had their prices slashed, and the median listing price fell to $435,000. The median listing price reached a high in June, of $450,000.
The price adjustments will take time. Sellers are reluctant to list their homes on the market, Redfin said, given cooling demand.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com