Thu. Mar 28th, 2024

The US housing market is starting to develop cracks. These 3 charts show what’s going on — and why home prices could be about to drop.<!-- wp:html --><p>US home prices have soared over the last decade, but could soon be on their way down.</p> <p class="copyright">MediaNews Group/Long Beach Press-Telegram via Getty Images</p> <p>Federal Reserve rate hikes are piling the pressure on the US's hugely expensive housing market.<br /> Many analysts now expect US home prices to start falling soon, as cracks begin to show.<br /> Three charts show what's going on in the market — and why prices might be about to drop.</p> <p>The Federal Reserve has hiked interest rates hard this year, and the US housing market is feeling the pain.</p> <p>To fight the strongest inflation in 40-years, the Fed has <a href="https://www.businessinsider.com/federal-reserve-hikes-interest-rates-july-credit-loans-inflation-recession-2022-7">raised its main interest rate</a> by 2.25 percentage points since March — and there are likely more increases to come.</p> <p>The Fed's rate hikes have sent mortgage rates soaring, making housing even more unaffordable for large numbers of Americans.</p> <p>Now, house sales are tumbling and inventory is rising dramatically. Many analysts are penciling falls in US home prices over the next 12 months.</p> <p>Official S&P Case-Shiller data on Monday showed that prices rose once again on average in June, although <a href="https://www.businessinsider.com/cities-where-housing-real-estate-prices-falling-rising-mortgage-rates-2022-8">some areas saw declines</a>. But June was three months ago.</p> <p>"We think existing home prices are falling, probably quite quickly," Ian Shepherdson, Pantheon Macroeconomics' chief economist, said in a note this week.</p> <p>Meanwhile, Goldman Sachs said it expects growth in home prices to <a href="https://markets.businessinsider.com/news/stocks/us-home-prices-stall-demand-falls-fed-mortgages-goldman-sachs-2022-8?amp">grind to a halt in 2023</a>. It said outright declines are possible, and indeed likely in some areas.</p> <p>Here are three charts that show why home prices could be set to tumble in the coming months.</p> <div class="insider-raw-embed"></div> <p> </p> <p>The main culprit behind the slowdown in the US housing market is the rapid rise in mortgage rates over the course of the year.</p> <p>The average 30-year mortgage rate shot up to a 14-year high of 5.98% in June, according to the Mortgage Brokers Association. It started the year at just 3.52%.</p> <p>US home prices jumped more than 40% over the course of the pandemic. Now a dramatic rise in borrowing costs has pushed home-ownership beyond the reach of even more Americans.</p> <div class="insider-raw-embed"></div> <p> </p> <p>With housing increasingly unaffordable, and Americans highly pessimistic about the economy, home sales have dropped off a cliff.</p> <p>Sales of existing US homes — as opposed to new homes — fell for the sixth straight month in July, to a seasonally adjusted annual rate of 4.81 million.</p> <p>New home sales have also dropped sharply, and the annual rate hit a six-year low of 511,000 in July.</p> <p>With demand drying up, many sellers are being forced to cut their asking prices to shift their homes. In the year to June, the number of homes with price reductions <a href="https://www.realtor.com/advice/buy/how-to-find-price-reduced-homes-and-what-it-means-for-buyers/">doubled to 14.9%</a>, according to Realtor.com.</p> <div class="insider-raw-embed"></div> <p> </p> <p>A shortage of homes for sale was a key driver of the boom in prices over the last decade. But that trend has reversed in 2022. As demand has fallen and sales have slowed, the number of homes on the market has risen sharply.</p> <p>Housing inventory has soared to 10.9 months, its highest level since 2009. That means it would take 10.9 months for the new homes on the market to be sold, if no additional new houses came on the market.</p> <p>"People who have deferred selling their home because it was just too lucrative to sit tight are now scrambling to get out," Shepherdson said.</p> <div class="read-original">Read the original article on <a href="https://www.businessinsider.com/us-home-price-falls-outlook-sales-inventory-mortgages-fed-rates-2022-9">Business Insider</a></div><!-- /wp:html -->

US home prices have soared over the last decade, but could soon be on their way down.

Federal Reserve rate hikes are piling the pressure on the US’s hugely expensive housing market.
Many analysts now expect US home prices to start falling soon, as cracks begin to show.
Three charts show what’s going on in the market — and why prices might be about to drop.

The Federal Reserve has hiked interest rates hard this year, and the US housing market is feeling the pain.

To fight the strongest inflation in 40-years, the Fed has raised its main interest rate by 2.25 percentage points since March — and there are likely more increases to come.

The Fed’s rate hikes have sent mortgage rates soaring, making housing even more unaffordable for large numbers of Americans.

Now, house sales are tumbling and inventory is rising dramatically. Many analysts are penciling falls in US home prices over the next 12 months.

Official S&P Case-Shiller data on Monday showed that prices rose once again on average in June, although some areas saw declines. But June was three months ago.

“We think existing home prices are falling, probably quite quickly,” Ian Shepherdson, Pantheon Macroeconomics’ chief economist, said in a note this week.

Meanwhile, Goldman Sachs said it expects growth in home prices to grind to a halt in 2023. It said outright declines are possible, and indeed likely in some areas.

Here are three charts that show why home prices could be set to tumble in the coming months.

 

The main culprit behind the slowdown in the US housing market is the rapid rise in mortgage rates over the course of the year.

The average 30-year mortgage rate shot up to a 14-year high of 5.98% in June, according to the Mortgage Brokers Association. It started the year at just 3.52%.

US home prices jumped more than 40% over the course of the pandemic. Now a dramatic rise in borrowing costs has pushed home-ownership beyond the reach of even more Americans.

 

With housing increasingly unaffordable, and Americans highly pessimistic about the economy, home sales have dropped off a cliff.

Sales of existing US homes — as opposed to new homes — fell for the sixth straight month in July, to a seasonally adjusted annual rate of 4.81 million.

New home sales have also dropped sharply, and the annual rate hit a six-year low of 511,000 in July.

With demand drying up, many sellers are being forced to cut their asking prices to shift their homes. In the year to June, the number of homes with price reductions doubled to 14.9%, according to Realtor.com.

 

A shortage of homes for sale was a key driver of the boom in prices over the last decade. But that trend has reversed in 2022. As demand has fallen and sales have slowed, the number of homes on the market has risen sharply.

Housing inventory has soared to 10.9 months, its highest level since 2009. That means it would take 10.9 months for the new homes on the market to be sold, if no additional new houses came on the market.

“People who have deferred selling their home because it was just too lucrative to sit tight are now scrambling to get out,” Shepherdson said.

Read the original article on Business Insider

By