Housing Market Predictions 2022
As more signs show that the housing market is already slowing down in 2022, many people are wondering: Will the housing market crash or collapse in the near future? More and more housing analysts are anticipating a more balanced housing market in the future, with annual appreciation slowing to single digits. Some housing markets are at risk of crashing or declining in home prices over the next 12 months.
The housing market is cooling as the economy is shrinking. The stock market is falling as inflation soars. Google trends include “Is the U.S. in a recession?” If the country isn’t in a recession, it may be close. Will another downturn crash the housing market? As of August 2022, amid record inflation and higher interest rates, the forecasters still think that home price growth in 2022 will see a strong deceleration but the price would still not decline year-over-year.
Housing caused the worst financial crisis in recent memory. When shoddy mortgages crumbled, the nation was left with foreclosures, numerous new houses remained empty, and millions of Americans were suddenly underwater. Throughout the preceding century, the housing market met considerable barriers, but none, with the exception of the Great Depression of 1929, led to the decrease in home values that happened during the Great Recession of 2007.
It is also important to note that not all economic downturns dampen the real estate market. Despite the economic downturn, the home market and demand remained robust during the 2001 recession. The housing market has been subjected to a number of severe hurdles during the course of the previous century; but, with the exception of 1929’s Great Depression, none of these challenges have resulted in a decrease in house values comparable to that of 2007’s Great Recession.
In 2022, most Americans don’t want another 18 months of hardship. The housing market’s recent pandemic boom, with skyrocketing prices, bidding wars, and an influx of investors, has parallels to that previous time. However, this time, the housing market won’t crash or trigger a recession and may even assist the country’s recovery. The majority of real estate professionals do not believe that the housing market of 2022 is in a bubble or poses a threat to the faltering economy.
This is despite the fact that home prices have risen by more than 31 percent nationally in only two years. The median list price figures on Realtor.com® are from June 2020 to June 2022. This time around, there are far more purchasers than available properties, the exact opposite of what occurred in the 2000s. The majority of bad mortgages have been eliminated. Lenders have significantly stricter requirements on borrowers.
However, this does not mean the economy is immune to the recession. Two consecutive quarters of negative U.S. gross domestic product, or GDP, often indicate an economic collapse. According to the U.S. Commerce Department, GDP decreased by 0.9% in the second quarter of the year, following a decline of 1.6% in the first quarter.
The unemployment rate remained extremely low in June, at only 3.6%. Despite the fact that more corporations are implementing hiring freezes and laying off staff, there are still a large number of organizations competing for personnel. If the country were in a recession, many more people would undoubtedly be unemployed, and companies would not be complaining about a lack of qualified applicants.
U.S. Federal Reserve Chair Jerome Powell has said the nation isn’t in a recession, a sentiment echoed by President Joe Biden.
“I do not think the U.S. is currently in a recession, and the reason is there are too many areas of the economy that are performing too well,” Powell said at a press conference on Wednesday.
According to Realtor.com, the housing shortage is simply too severe, with many more individuals trying to purchase and rent houses than there are available. In addition, the mortgage sector took action against loans that ballooned in size or were intended for borrowers to fail. And only purchasers with a consistent, verifiable income may qualify for mortgages.
The housing market was very different during the Great Recession In 2005 and 2006, 20% of mortgages went to persons who didn’t meet regular lending conditions. They were called Subprime borrowers. Subprime lending has a higher risk, given the lower credit rating of borrowers. 75% of subprime loans were adjustable-rate mortgages with low initial rates and a scheduled reset after two to three years. Government promotion of homeownership prompted banks to slash rates and credit criteria, sparking a house-buying frenzy that drove the median home price up 55% from 2000 to 2007.
Nowadays, things are very different. Even if a recession occurs in 2022 or 2023, experts do not anticipate the widespread unemployment that characterized the Great Recession. They also anticipate that the recession will be quite brief. This means that there will be fewer homeowners unable to pay their mortgages. Those who are struggling may decide to sell their houses, maybe even at a profit, rather than allow them to be lost to foreclosures and short sales.
Without a lot of cheap homes flooding the housing market, home prices should remain strong to prevent any crash coming.
Many tapped-out homeowners are taking a step back as mortgage interest rates progressively rise into the 5%-plus range or close to 6%. Some no longer qualify for mortgages big enough to finance the purchase of the type of home they desire. Others cannot afford the increased rates and prices or do not wish to purchase at the housing market’s peak. Some individuals are taking a wait-and-see strategy out of fear of a recession.
As a result, fewer properties are selling, bidding wars are subsiding, and bids beyond the asking price are decreasing. Numerous house sellers have been compelled to reduce their asking prices. In the event of a recession, mortgage rates are anticipated to decline. This should reintroduce buyers (who did not lose jobs) to the housing market. When home sales will increase, the economy as a whole will benefit. This is how the housing market can assist the nation in climbing out of a recession.
The National Bureau of Economic Research’s Business Cycle Dating Committee, and the eight economists who sit on it, are the official arbiter of whether the economy has entered into a recession. It has yet to make a determination.
“We’ll wait and see,” says Hale. Whatever happens, “I don’t expect another housing crash.” “In today’s housing market, we have a decade’s worth of underbuilding, which means there’s a lot more demand than supply,” says Hale. That imbalance should keep home prices stable. “It’s unlikely we will see big home price declines as we saw in the late 2000s.”
Millennial Housing Demand Will Keep The Market From Crashing
Millennials and Gen Z want more housing. As of July 2019, 166 million Americans aged Millennial or younger are potential homebuyers. According to the National Association of Realtors, first-time buyers were responsible for 30% of sales in June, up from 27% in May and down from 31% in June 2021. Most first-time buyers are younger than 40, indicating a broad buyer pool and robust demand, especially given low home inventories.
We won’t see a decline since home inventory hasn’t grown in 10 years. In a few years, Gen Z will be 30 and more financially competent to become homes than Millenials were at their age. This suggests house demand will remain strong, if not rise, while inventory lags. The extremely low supply is driving up home prices, which is another reason why housing experts believe the market will remain strong for years to come.
The fundamental reason house prices have risen so fast in the past two years of the pandemic is a supply-demand imbalance, And, after not building nearly enough houses over the previous decade, it will take at least many years for homebuilders to add enough new supply to balance the market.
The months of supply in a balanced market would be roughly six months—the time it would take to exhaust all homes for sale at the current sales rate. However, the current market has only 3.0 months of supply (up from 2.5 months in June 2021), indicating a significant imbalance in favor of sellers. The slowdown in housing construction continued into June as housing starts fell to their lowest level since September 2021. Housing starts fell by 32k units in June to 1,559,000 (annualized).
With building permits falling for the third month in a row, evidence point to continued weakness in house development, particularly in the single-family category. As mortgage rates remain at levels last seen at the onset of the Global Financial Crisis, it is anticipated that demand will continue to decline throughout the year but there are no signs of a housing market crashing again this year or in 2023.
Pandemic-induced housing boom will slow down somewhat. The slowing economy, combined with inflation and interest rates eroding consumer purchasing power, presents large challenges for the housing market through the rest of the year. That said, a strong labor market remains supportive of demand, and improving supply conditions should help keep the construction market from rapidly deteriorating.
Today’s buyers are facing challenges in the form of high prices and mortgage rates. House prices are continuing to grow and new home constrictions lag behind, leaving them in constrained housing conditions. Some buyers move from large cities to cheaper metros. Buying a house today during inflation, even if it means postponing other expenditures, might save money if prices and equity grow. Buyers may save by buying a property and locking in a rate before rates and prices rise further.
The economy affects housing supply and demand. If the economy is strong, more people will purchase and sell real estate. If the economy isn’t functioning well, consumers have less income due to inflation. Their wages and weekly income aren’t rising as fast. Supply and demand affect home values. Even if inflation is high, housing prices will decline due to oversupply.
For example, between 2006 and 2007, failure to make mortgage payments resulted in the foreclosure of millions of homeowners, resulting in a steep decline in house values, an increase in financial troubles, and, eventually, the bursting of the housing bubble. The ability to predict when the housing market would implode depends on a number of things. After all, is said and done, you must consider the following questions. Are homes still being sold in your neighborhood? Do prices fluctuate frequently? Are there numerous home foreclosures?
Buyers and investors in the housing market must be able to see through real estate agent hype and bluff. Answering these questions can help you understand how your local housing market is performing, but there is no specific formula for determining whether a housing crisis is near. If you are unsure of what you are witnessing in your particular market, an experienced local realtor will help put your queries in context.
Housing Market Predictions: Will the Housing Market Crash?
The current state of the real estate housing market, which is currently adjusting to record-high inflation and higher interest rates, is giving real estate companies and experts a run for their money, as the continued pressure of these forces is causing difficulties for those who make future predictions. What are the housing market crash predictions for the next five years? Prior to answering this question, it is crucial to comprehend what causes real estate markets to fall in the first place.
First, it is essential to recognize that housing markets do not suddenly crash. Multiple variables will exert pressure on a market over time, eventually leading to its collapse. When home values climb too rapidly, a housing bubble arises. When there’s demand and the capacity to buy, it may increase. When there aren’t enough houses for sale to match demand, competition drives up prices.
When a housing bubble expands and pressure builds, the housing market may crash. Interest rate hikes slow the economy. Demand and jobs might drop. Oversupply promotes a buyer’s market and cheaper pricing. The real estate market might then fall or stall down. How can you know how awful and how fast it will go better? It depends on how sustainable development was before the slowdown and how serious the causes are.
Despite the fact that home prices continue to set records, a panel of housing specialists and economists polled by Zillow believes the market is not in a bubble. The most recent Zillow Home Price Expectations study interviewed more than 100 experts from academia, government, and the private sector about the status of the housing market and future growth, inflation estimates, and recession risks. Sixty percent of those polled do not believe the US housing market is now in a bubble, compared to 32 percent who say it is and 8 percent who are unsure.
Source: Zillow
Strong market fundamentals, including demographics, restricted inventory, and altering housing tastes, led respondents to reject the housing bubble argument. Sound loan underwriting and the majority of fixed-rate, fully amortized mortgages led to low credit risks. Another substantial minority opposed the word “bubble,” which suggests an imminent crash. Unaffordable prices in the absence of record-low mortgage rates are the main concern of housing bubble believers.
A hot market doesn’t always indicate a bubble. Although a recession is imminent, today’s housing market is very different from the mid-2000s. This market is supported by robust fundamentals and sound mortgages, aspects that won’t alter soon. Therefore, most of the housing crash predictions show us that prices aren’t likely to drop in the near future.
Despite a more than 100-basis point increase in mortgage rates since the previous survey just three months ago and the potential for higher rates in coming months, the panel’s expectations for 2022 home price appreciation still rose to 9.3% from 9.0% last quarter. This would be a significant step down from the 19.6% appreciation observed over the 2021 calendar year, but still high above long-term historical averages.
Looking forward, the most optimistic quartile of respondents predicted prices would rise 46.1% between now and the end of 2026, while the most conservative quartile predicted a cumulative rise of only 9.3% in that time. On average, respondents are forecasting a 26.4% cumulative rise by the end of 2026.
The next 5 years will also see huge technological changes in the real estate sector, which could impact the demand and supply. The housing market is coming off a year in which home prices in the United States increased by an unsustainable 18.8%. Will the market continue to grow at this rate or will it be a little less frenetic this year?
An already challenging market with limited inventory and record price growth has become even more unfavorable for homebuyers as a result of an unprecedented interest rate increase. Even industry titans like Zillow decreased their bullishness in September 2022, decreasing their projected home price growth rate for the next twelve months.
Zillow’s home value forecast expects a significant slowdown in annual home value growth – as measured by the raw Zillow Home Value Index from the current rate of 14.1% annual growth to 1.4% growth for the twelve months ending August 2023. This is a downward revision from August’s year-ahead forecast of 2.4% home value growth.
Zillow’s home sales forecast now calls for 5.1 million existing home sales in 2022. That is a downward revision from an expectation for 5.3 million existing home sales a month earlier and would mark a 16.4% decrease from 2021, which was the strongest calendar year for home sales since 2006.
The downward revisions come as a result of recent housing market indicators continuing to show buyers hanging back while affordability obstacles remain as high as they’ve been in recent memory. The Zillow Home Value Index showed home values declined from July to August, the second straight monthly dip. Days to pending and total inventory are climbing, while the flow of new listings is much lower than a year ago, indicating homes are lingering on the market longer without a sale.
One of the most widely held housing market predictions for 2022 & 2023 is that inventory will remain scarce but price appreciation will be slower than it was in the last two years. While spring and summer will likely see an increase in listings, it is unlikely that there will be enough to meet demand. The housing market has been particularly robust during the pandemic, with high demand for homes in almost every region of the nation.
The cost of borrowing money through mortgages has been steadily increasing this year. Most experts predicted that mortgage rates would climb this year, but they did so more quickly than expected, averaging more than 4% for 30-year fixed-rate mortgages in mid-February. Around mid-April, it surged to 5.28 percent, the highest level since April 2010, and the uptick continues.
As of October 09, 2022, the current average rate for the benchmark 30-year fixed mortgage is 6.97%, increasing 14 basis points over the last seven days. Monthly affordability is suffering as interest rates rise, but we’ll also lose more of the investment-type buyers looking for once-in-a-lifetime leverage.
As a result, rising interest rates may also imply a more balanced market. With rates that low in 2021, all kinds of buyers rushed in, and with little housing supply to match, the price rise has been ferocious. This also emphasizes affordability. The basics of housing needs would still continue to drive primary purchases forward. It’s a good thing that the housing market will be less heated in 2022 and 2023. Let’s take a closer look at why the housing market is showing some signs of a slowdown in 2022 & beyond.
Fannie Mae’s housing market forecast released in September 2022 is also less bullish due to softening consumer spending. The ESR group lowered their 2022 forecast for total home sales slightly to 5.78 million units, a 16.2 percent decline from 2021, down from our previous forecast of a 15.6 percent drop.
Despite a pullback in mortgage rates over the past month, the recent incoming data point to a faster near-term slowdown in sales than they had expected, especially for new homes. In contrast, our total sales outlook for 2023 was revised upward slightly from 5.15 million to 5.18 million units.
Given changes to their outlook for both home sales and mortgage rates, they have slightly lowered our forecast for 2022 mortgage originations to $2.47 trillion (previously $2.53 trillion), while modestly raising their 2023 originations forecast to $2.29 trillion (previously $2.22 trillion).
They expect modest economic growth to resume in the near term, but the effects of tightening monetary policy and rolling-off fiscal policy, as well as slowdowns in growth abroad, have not yet fully been felt in the US economy. They expect the Fed to modestly slow its pace of tightening by increasing the funds rate. Their baseline view is that the Fed Funds rate will peak at around 3.4 percent by year-end, which leaves approximately 100 basis points in hikes remaining to be distributed. However, the risks to this Fed call are on the high side.
Despite mortgage rates pulling back over the past month, now down 59 basis points from the recent peak (5.22 percent as of the last Freddie Mac survey) Fannie Mae continues to anticipate a slowdown in home sales activity. Even with the mortgage rate decline, housing affordability is still a major constraint for potential homebuyers.
Mortgage rates are up about 235 basis points from a year earlier and house prices have appreciated on an annual basis by 19.4 percent through Q2 according to the Fannie Mae House Price Index. Many existing homeowners are likely reluctant to move due to having a current mortgage with a rate well below current market rates. At 5.22 percent, the group estimates that 84 percent of outstanding mortgages are at least 100 basis points below current market rates.
Source: Q2 2022 Fannie Mae Home Price Index (FNM-HPI)
Will The Mortgage Market Decline?
The Economic & Strategic Research (ESR) Group now projects total mortgage originations to be $2.47 trillion in 2022, a downward revision of $61 billion from July’s forecast. In 2023, they expect total originations to fall further to $2.29 trillion. However, this represents an upgrade of $66 billion from last month’s forecast.
In the purchase market, they have downgraded our originations expectation for 2022 by $74 billion to just over $1.7 trillion, given the downward revision to the housing forecast and lower incoming home sales price data for Q2. The forecast for 2023 purchase volumes has been largely unchanged at just under $1.7 trillion.
In the refinance market, they now expect 2022 volumes to total $769 billion, $13 billion higher than last month’s forecast, driven by lower anticipated mortgage rates. The group expects the 2023 volume to be $592 billion, up $74 billion from last month, reflecting the downward revision to interest rates this month.
Housing Market Quarterly Outlook
The FMHPI is an indicator of typical house price inflation in the United States. It shows that home prices increased by 11.3 percent in 2020 and 15.9 percent in 2021, as a result of robust housing demand and record-low mortgage rates. According to Freddie Mac’s quarterly housing forecast released in July 2022, the total home sales are down 17% since the beginning of the year.
They expect housing demand to moderate and forecast home sales to slow to 6 million in 2022 and 5.4 million in 2023. They also forecast 30-year fixed rates to average 5% in 2022 and rise to 5.1% in 2023. House price appreciation is slowing to a more moderate growth rate and it is expected that price growth will be 12.8% and 4.0% in 2022 and 2023 respectively.
Freddie Mac anticipates home purchase mortgage originations to reach $2.0 trillion in 2022, followed by a decline to $1.9 trillion in 2023 as a result of house price growth and home sales forecasts. They predict that refinance originations will decline from $2.8 trillion in 2021 to $885 billion in 2022 and $450 billion in 2023 as a result of rising mortgage interest rates. From a peak of $4.8 trillion in 2021, they expect total originations to decline to $2.8 trillion in 2022 and $2.3 trillion in 2023.
Source: Freddie Mac
Mark Zandi, the chief economist of Moody’s Analytics, said he is concerned about a harsh landing in the housing market. Still, he believes the market and economy will not collapse as they did last time. He believes that for the 2023 housing market, home prices will level off, decreasing in certain sections of the country while rising somewhat in others. In comparison to the rise in 2022, this prediction for 2023 appears fairly reasonable.
The US CoreLogic S&P Case-Shiller Index Declined Further in July
In July, the CoreLogic S&P Case-Shiller Index posted a 15.8% increase, down from an 18.1% gain in June, marking the fourth month of decelerating annual home price appreciation. Nevertheless, due to the price growth momentum over the last year, July’s year-over-year increase was the second strongest since the beginning of the data series. At 19.9%, July 2021 had the highest growth recorded for that month.
In addition, the non-seasonally adjusted month-to-month index turned negative, down by 0.3% in July from a 2.6% peak increase in March and a 0.6% gain in June, suggesting that home price growth will march at a much slower pace going forward. Between 2014 and 2019, the monthly index changes from June to July averaged about a 0.5% gain. The last time monthly price changes dropped was in the winter of 2018-2019 when the Federal Reserve went through a round of monetary tightening and the housing market similarly slowed.
At this pace, and according to CoreLogic’s Home Price Index forecast, annual home price growth is expected to slow to 10% by December, half of the peak 20% increase recorded in April 2022. Home price deceleration and seasonal declines in some markets will provide opportunities for potential buyers who are now facing less competition than earlier this year. Nevertheless, with mortgage rates currently above 6% and little signs of slowing, housing demand will suffer beyond what was initially expected earlier this year.
Compared with the 2006 peak, the 10-city composite price index is now 44% higher, while the 20-city composite is up by 53%. Adjusted for inflation, which continues to remain concerningly elevated, the 10-city index is now up by 1%, while the 20-city index is up by 7% compared with the 2006 peak.
Source: CoreLogic S&P Case-Shiller Indices, not seasonally adjusted (August 30, 2022, release)
Top Markets at Risk of Home Price Crash
The CoreLogic Maret Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that Crestview-Fort Walton Beach-Destin, FL is at very high risk (70%-plus probability) of a decline in home prices over the next 12 months. Bremerton-Silverdale, WA; Bellingham, WA; Boise City, ID, and Reno, NV are also at very high risk for price declines.
Source: CoreLogic
Many concerns remain about the housing market. Critically, while one of the biggest drivers of home price growth has been the lack of supply, higher rates are holding back both potential sellers and new construction. As such, there is no relief in sight for an improvement in the housing supply and the sustainable housing market that would come with increased inventory.
Sources:
https://www.realtor.com/news/trends/recession-will-housing-market-survive/
https://www.corelogic.com/intelligence/u-s-home-price-insights/
https://www.forbes.com/advisor/mortgages/real-estate/will-housing-market-crash/
https://www.zillow.com/research/zhpe-q2-2022-not-a-bubble-31093/
https://www.freddiemac.com/research/forecast
http://www.freddiemac.com/research/forecast/20210715_quarterly_economic_forecast.page
https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx
https://www.zillow.com/research/zillow-home-value-and-sales-forecast-september-2022-31431/
https://www.fanniemae.com/research-and-insights/forecast/weak-growth-continues-housing-slows
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