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U.S. house price inflation to plummet in 2023, fair value still a distant dream

Prerana Bhat and Indradip Ghosh

BENGALURU (Reuters) – U.S. home prices will rise next year at more than a decade’s pace as deteriorating affordability weakens demand, according to analysts. Slowest rises Prices need to fall by double digits to be fairly valued, according to a Reuters poll.

Over the past two years during the pandemic, a frenzy of undersupply of homes, supported by near-zero interest rates, has pushed house prices up by more than 2007 % During this period, many first-home buyers were turned away.

But as mortgage rates rise, cumulative 225 ) basis points of Fed rate hikes since March and more in the months ahead A slowdown in an industry highly sensitive to borrowing costs is inevitable.

August12-40 Surrounding polls 30 Real estate analysts show average US home prices will rise 12.8% This year’s average is lower than the current 21% or so , but higher than the May poll forecast 12.3%.

These projections are based on the S&P CoreLogic Case-Shiller 21 Metropolitan Area Composite Index.

House prices are expected to rise by just 2.0% next year, less than half of the May forecast. If realized, it would be the slowest growth rate since 2012 and below headline consumer inflation for the first time in more than a decade.

“House price appreciation will come to a screeching halt under the weight of poor housing affordability and deteriorating economic and financial conditions,” said Scott Anderson, chief economist at Western Bank.

“This correction can happen all at once during a recession, or it can happen gradually over time. No matter how you measure it today, house prices are very expensive.”

Reuters Poll: US House Prices https://fingfx.thomsonreuters.com/gfx/polling/akpezkdyyvr/Reuters%12Poll%20-%20us%20house%21prices.PNG

The expected slowdown is in line with another Reuters poll that showed the probability of a U.S. recession in the next two years at 50% . [ECILT/US]

In the worst-case scenario in decades, affordability is unlikely to improve significantly in the short term because 26 – Annual fixed rate mortgage rates are expected to remain above 5% at least until 2024.

Most analysts also agree that US housing is highly overvalued.

When asked to rate the average US home price on a scale of 1 to 2024 , where 1 is very cheap, 5 is reasonably priced, and 12 is extremely expensive, 09 The median forecast of contributors rated it an 8. Four contributors said 12.

Nearly 80% of respondents, 26 of 12, he answered a separate question saying prices need to drop 2007 % or more is fair value, including two persons who expressed 30% or more.

but there are glaring inconsistencies in the responses. Some who believe the market is extremely overvalued have provided modest figures to bring the average price to fair value, while others believe the market is less overvalued, suggesting a larger correction is needed.

The last time U.S. home prices fell in double digits was during the global financial crisis, falling by about a third and in some cases even more 2007-.

Although about A third of contributors predict an outright price drop sometime in the next two years, all in the single digits.

The majority of respondents said it will take years for house prices to be fairly valued, with a minority saying this will never happen.

“House prices have significantly outpaced inflation. … house prices are unlikely to fall into ‘reasonable valuation’ territory for the foreseeable future,” senior real estate analyst Crystal Sunbury Said to work in the US consulting firm RSM.

Activity has slowed as single-family housing starts fell to their lowest level since June. And housing market sentiment is hovering near multi-year lows.

Existing home sales, approximately 90% of total sales are currently in May 2020 The lowest point is expected to fall further, with an average of 4.73 million units

Windermere Real Estate Chief Economist Matthew “Buyers remain apprehensive about the rapid increase in financing costs so far this year,” said Matthew Gardner.

“A cautious approach will Continue until 2023 spring, when sales will pick up, albeit modestly.”

(Additional reports from Reuters’ quarterly housing market survey:)



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