The housing market just slid into a full-blown correctio

seminole97

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Moody's Analytics chief economist Mark Zandi is ready to call it. He tells Fortune that we've officially moved from a housing boom into a "housing correction."

The real estate data rolling in for April and May shows that the U.S. housing market is softening. New home sales fell 19% to their lowest level since April 2020. Redfin reports 19% of home listings cut their price over the past month. Inventory is rising fast, while mortgage applications and existing home sales are also falling.

This drop-off isn't a result of seasonality, or a soft month or two. Zandi says it's a trajectory flip: Demand is pulling back—fast—in the face of mortgage rates that have spiked dramatically.


"The housing market has peaked…everything points to a rolling over of the housing market," Zandi says. "In terms of home sales, they're falling sharply. Housing demand is coming down fast. Home price growth [will] go flat here pretty quickly; we will see [home] price declines in a significant number of markets."

Unlike a stock market correction, which means a greater than 10% drop in equities, Zandi says a "housing correction" means the end of the housing boom and the beginning of a period where home prices will fall in some regional markets. Over the coming 12 months, he expects year-over-year home price growth to be 0%. If that comes to fruition, it'd mark the worst 12-month stretch since 2012. It would also be whiplash for real estate agents and brokers who've watched home prices soar 19.8% over the past year.

This is all by design. The Federal Reserve has a dual mandate from Congress: Keep both unemployment and inflation low. Of course, with the jobless rate at 3.6% and the latest CPI reading at 8.3%, it's obvious which mandate the Fed has shifted its attention to: inflation. In the Fed's mind, if it can end the housing boom, it can slow down overall price growth. That's why the Fed hit the housing market with an economic shock of higher mortgage rates.

The Fed won't be appeased with simply slowing home sales, Zandi says. It will also want home construction to slow. Elevated home construction, which this year hit its highest level since 2006, has put upward pressure on everything from lumber to steel to kitchen tables. If the housing market heats back up before inflation has been tamed, Zandi says, the Fed would simply push mortgage rates even higher. Already, over the past five months the average 30-year fixed mortgage rate has spiked from 3.11% to 5.1%.

To be clear, Zandi doesn't see a 2008-style housing bust or foreclosure crisis. While the spike in mortgage rates has pushed the housing market into the upper bounds of affordability, we don't have the credit issues that plagued us last time. Homeowners are financially better off than they were in the lead-up to the 2008 financial crisis. This time around, Zandi says, we also don't have widespread subprime mortgages. Also, if nationwide home prices do begin to plummet, he says, the Fed could always ease up on mortgage rates.

That said, Zandi says some regional housing markets have become historically "overvalued" and could see home prices decline 5% to 10% over the coming year. If a recession does come, Zandi says price drops in those markets could grow to between 10% to 20%.

Among the nation's largest 392 housing markets, 96% have home prices that are "overvalued" relative to what local incomes can support. . Among those 392 markets, 149 are overvalued by at least 25%. That includes Boise, where home prices are 73% above what Moody's says economic fundamentals support.

Zandi says the extremely "overvalued" housing markets like Boise and Phoenix are at the highest risk of falling home prices over the coming year. So are numerous markets throughout the Mountain West, Southwest, old South, Carolinas, Florida, and Texas.

While Zandi said he doesn't think nationwide home prices will drop, he says they're likely to see "real" home price declines. That's economic speak for inflation growing faster than U.S. home prices.

"Inflation will still be positive. If inflation is at 8% and home prices go nowhere, then home prices decline 8% in real terms," Zandi says. Now that home prices have become "overvalued" we're set to enter into a period where both income growth and inflation outpace home price growth, he say. For home shoppers who've been priced out by the pandemic's housing boom—which saw U.S. home prices soar 34.4% since February 2020—that's not exactly bad news.
 

dandh

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Interesting article, thanks for sharing. I think he's a little too optimistic about prices remaining stable, however. I look for a decline in actual terms in the majority of markets over the next two years. Plus inflation will continue to be a problem for the foreseeable future, imo. The Fed is too late and too timid with rate hikes, and the government is doing nothing positive with fiscal policy or to increase supply in key areas like energy and food.
 

noleclone2

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Interesting. Still pretty hot here where inventory is too low. But I agree with notion it has to stop/ peak. There were some smaller houses in my neighborhood selling for 300 plus a SF. It would be good for everyone actually if what he said was true in many ways.
 

fredjr82

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I'm right in the middle of it now as we're looking at moving and selling our home.

I couldn't believe the amount of home I qualified for by myself! I told them I wasn't on House Hunters and asked if that was a real figure? They assured me it was.

I think Iowa still stays where it is. At this point people are still over bidding on homes from the asking price. Even if that drops a little we're still at asking or a little under.

We'll see what happens. I bought my current home in 2008 (first crash).
 

noleclone2

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I've read several similar articles about the Florida housing market.

Yep. Another interesting thing is reading OP article how this year has seen highest new construction since 2006? Does not seem that way here. It feels Ike new construction is off due to supply prices and difficulty plus high labor costs. Now is not the time to build.
 

noleclone2

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I'm right in the middle of it now as we're looking at moving and selling our home.

I couldn't believe the amount of home I qualified for by myself! I told them I wasn't on House Hunters and asked if that was a real figure? They assured me it was.

I think Iowa still stays where it is. At this point people are still over bidding on homes from the asking price. Even if that drops a little we're still at asking or a little under.

We'll see what happens. I bought my current home in 2008 (first crash).
The article indicates it won’t be like 08. It’s more of a flat lining and slowing. No more bidding 50k over selling price!
 
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fredjr82

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Interesting. Still pretty hot here where inventory is too low.

I check every day. Houses are listed and gone off the site in a matter of days. Mostly because the seller is accepting all offers until a certain date. They know they're going to get multiple offers.

The house up the street from me just went for 20k more than asking and had 10 offers.
 

fredjr82

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The article indicates it won’t be like 08. It’s more of a flat lining and slowing. No more bidding 50k over selling price!

And I'm OK with that.

I still think Iowa may still see a little bit of the over bidding. My realtor said it's younger kids from Minneapolis and Chicago whose money goes farther here. With a remote work force, people are moving away from urban areas.
 

DFSNOLE

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I check every day. Houses are listed and gone off the site in a matter of days. Mostly because the seller is accepting all offers until a certain date. They know they're going to get multiple offers.

The house up the street from me just went for 20k more than asking and had 10 offers.
We had a house about half the size of mine on our street sell for more than any house has previously. That made my wife want to put a sign in our front yard. If I had somewhere else to go, I might have but then I would be the next one buying at the top of the market.
 

bunsen82

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So my brother just sold his house for 70% more than he purchased it 6 years ago in Lincoln (I just shake my head). My house valuation is probably only up 50% over 12 years in a smaller town in Iowa. What is interesting is smaller towns are seeing much more demand of people coming from Urban areas, remote working and looking for cheap housing in the last couple of years. This discussion all comes down to interest rates, if the 10 year flatlines at 3-4% housing prices may dip a little bit, if the 10 year continues to go up the exorbitant prices in the metro areas will have to come down.
 
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StormHawk42

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Seems that two things can be true. Inflation + high mortgage rates will almost certainly place a cap on the upper end homes that we would consider overvalued (in DSM, I’d categorize those in the $500k + range for homes that were well under $500k just a couple years ago)

But the lack of inventory will keep the price high for lower end/starter homes (our first house we bought for $215k a few years ago would go for over $300k now).

So I think the “ceiling” will stay flat or lower a bit but the “floor” will continue to be high. Lots of first time buyers will continue to overpay.
 

Joes Place

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Moody's Analytics chief economist Mark Zandi is ready to call it. He tells Fortune that we've officially moved from a housing boom into a "housing correction."

The real estate data rolling in for April and May shows that the U.S. housing market is softening. New home sales fell 19% to their lowest level since April 2020. Redfin reports 19% of home listings cut their price over the past month. Inventory is rising fast, while mortgage applications and existing home sales are also falling.

This drop-off isn't a result of seasonality, or a soft month or two. Zandi says it's a trajectory flip: Demand is pulling back—fast—in the face of mortgage rates that have spiked dramatically.


"The housing market has peaked…everything points to a rolling over of the housing market," Zandi says. "In terms of home sales, they're falling sharply. Housing demand is coming down fast. Home price growth [will] go flat here pretty quickly; we will see [home] price declines in a significant number of markets."

Unlike a stock market correction, which means a greater than 10% drop in equities, Zandi says a "housing correction" means the end of the housing boom and the beginning of a period where home prices will fall in some regional markets. Over the coming 12 months, he expects year-over-year home price growth to be 0%. If that comes to fruition, it'd mark the worst 12-month stretch since 2012. It would also be whiplash for real estate agents and brokers who've watched home prices soar 19.8% over the past year.

This is all by design. The Federal Reserve has a dual mandate from Congress: Keep both unemployment and inflation low. Of course, with the jobless rate at 3.6% and the latest CPI reading at 8.3%, it's obvious which mandate the Fed has shifted its attention to: inflation. In the Fed's mind, if it can end the housing boom, it can slow down overall price growth. That's why the Fed hit the housing market with an economic shock of higher mortgage rates.

The Fed won't be appeased with simply slowing home sales, Zandi says. It will also want home construction to slow. Elevated home construction, which this year hit its highest level since 2006, has put upward pressure on everything from lumber to steel to kitchen tables. If the housing market heats back up before inflation has been tamed, Zandi says, the Fed would simply push mortgage rates even higher. Already, over the past five months the average 30-year fixed mortgage rate has spiked from 3.11% to 5.1%.

To be clear, Zandi doesn't see a 2008-style housing bust or foreclosure crisis. While the spike in mortgage rates has pushed the housing market into the upper bounds of affordability, we don't have the credit issues that plagued us last time. Homeowners are financially better off than they were in the lead-up to the 2008 financial crisis. This time around, Zandi says, we also don't have widespread subprime mortgages. Also, if nationwide home prices do begin to plummet, he says, the Fed could always ease up on mortgage rates.

That said, Zandi says some regional housing markets have become historically "overvalued" and could see home prices decline 5% to 10% over the coming year. If a recession does come, Zandi says price drops in those markets could grow to between 10% to 20%.

Among the nation's largest 392 housing markets, 96% have home prices that are "overvalued" relative to what local incomes can support. . Among those 392 markets, 149 are overvalued by at least 25%. That includes Boise, where home prices are 73% above what Moody's says economic fundamentals support.

Zandi says the extremely "overvalued" housing markets like Boise and Phoenix are at the highest risk of falling home prices over the coming year. So are numerous markets throughout the Mountain West, Southwest, old South, Carolinas, Florida, and Texas.

While Zandi said he doesn't think nationwide home prices will drop, he says they're likely to see "real" home price declines. That's economic speak for inflation growing faster than U.S. home prices.

"Inflation will still be positive. If inflation is at 8% and home prices go nowhere, then home prices decline 8% in real terms," Zandi says. Now that home prices have become "overvalued" we're set to enter into a period where both income growth and inflation outpace home price growth, he say. For home shoppers who've been priced out by the pandemic's housing boom—which saw U.S. home prices soar 34.4% since February 2020—that's not exactly bad news.

No shit.

After watching homes in my area doubling in value in ~9 years, this was coming.
Increases recently track WAY over historical norms. Looks just like the 2009 bubble IMO


ipc_united-states_house-prices-growth


 

NCHawk5

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No shit.

After watching homes in my area doubling in value in ~9 years, this was coming.
Increases recently track WAY over historical norms. Looks just like the 2009 bubble IMO


ipc_united-states_house-prices-growth


The 2009 bubble eh? Don’t remember that one.
 

Joes Place

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I pretty much timed the last bubble and bottom perfectly.

Sold a San Diego property in 2006 when moving to CO
Rented in CO for ~7 years while I watched the carnage

Bought here in 2013, just as the markets were coming back.
I would not bother buying anything until the next correction. Unless you are getting something you really really want, and won't need to sell/move for >10 years to ride it out. There may be lots of people "underwater" over the next 3-5 years...and may not be a very good decade to be a realtor...
 

NCHawk5

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I pretty much timed the last bubble and bottom perfectly.

Sold a San Diego property in 2006 when moving to CO
Rented in CO for ~7 years while I watched the carnage

Bought here in 2013, just as the markets were coming back.
I would not bother buying anything until the next correction. Unless you are getting something you really really want, and won't need to sell/move for >10 years to ride it out. There may be lots of people "underwater" over the next 3-5 years...and may not be a very good decade to be a realtor...
So let’s get this straight- the guy who 45 minutes ago didn’t know what year the housing bubble came down actually timed his sale and repurchase perfectly at peak and bottom? El Oh El
 

OutbackBowl2017

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I pretty much timed the last bubble and bottom perfectly.

Sold a San Diego property in 2006 when moving to CO
Rented in CO for ~7 years while I watched the carnage

Bought here in 2013, just as the markets were coming back.
I would not bother buying anything until the next correction. Unless you are getting something you really really want, and won't need to sell/move for >10 years to ride it out. There may be lots of people "underwater" over the next 3-5 years...and may not be a very good decade to be a realtor...
Rented for 7 years? That’s lost equity regardless of price and interest credit on taxes.
 
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I highly doubt we'll see any correction for the $100-$500k price range. I anticipate it will continue to grow but at a slower pace of maybe 4-5% for the next two years.
 
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BeepBeepInMyJeep

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And I'm OK with that.

I still think Iowa may still see a little bit of the over bidding. My realtor said it's younger kids from Minneapolis and Chicago whose money goes farther here. With a remote work force, people are moving away from urban areas.

Its probably one of the best opportunities for rural areas and states like Iowa to grow in 50 years. If these states invested government money in infrastructure, high speed internet and cell networks I think it’d attract a lot of people for that reason and others. Of course, they won’t.
 

fredjr82

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Its probably one of the best opportunities for rural areas and states like Iowa to grow in 50 years. If these states invested government money in infrastructure, high speed internet and cell networks I think it’d attract a lot of people for that reason and others. Of course, they won’t.

Most small town Iowa runs fiber directly to the home. I have client getting 300Mb up/down in a town of 2000. That's faster internet than I currently have!
 
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Old_wrestling_fan

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Yep. Another interesting thing is reading OP article how this year has seen highest new construction since 2006? Does not seem that way here. It feels Ike new construction is off due to supply prices and difficulty plus high labor costs. Now is not the time to build.
Hmmm...home builders in Eastern Iowa that i know are BUSY. FWIW.
 
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Old_wrestling_fan

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I check every day. Houses are listed and gone off the site in a matter of days. Mostly because the seller is accepting all offers until a certain date. They know they're going to get multiple offers.

The house up the street from me just went for 20k more than asking and had 10 offers.
Still hearing the same in iowa city. ^^

Things may have slowed up a little. But still hot v. normal.
 

Old_wrestling_fan

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And I'm OK with that.

I still think Iowa may still see a little bit of the over bidding. My realtor said it's younger kids from Minneapolis and Chicago whose money goes farther here. With a remote work force, people are moving away from urban areas.
The people moving "back home" to the Midwest from high housing markets almost NEED home prices to be high here and they oftentimes have plenty of spending power after selling a place elsewhere.
 

Jcchawk

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House across the street sold for 100K more than paid for just 7 years ago. Had 18 groups through the first day and sold for 21k over listing in one day. There's no bubble bursting around here yet.
 

An Iowa fan

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This place sold for $10 million on May 8. On May 16 it was back on the market listed at $16 million. I don't know the story behind it, but it seems insulting. There was another place that sold for $2.1 million in March and is now listed for sale at $2.8 million.
Are people really trying to turn it that quickly?

 

An Iowa fan

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There are good real estate markets yet.



The developer that bought this oversized lot is from Ankeny, Iowa.
 

NCHawk5

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There are good real estate markets yet.



The developer that bought this oversized lot is from Ankeny, Iowa.
Hmm the market doesn’t seem to believe in the global warming risks 🤔
 

83Hawk

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So let’s get this straight- the guy who 45 minutes ago didn’t know what year the housing bubble came down actually timed his sale and repurchase perfectly at peak and bottom? El Oh El
If he did, it was pure luck.
 

Pinehawk

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House across the street sold for 100K more than paid for just 7 years ago. Had 18 groups through the first day and sold for 21k over listing in one day. There's no bubble bursting around here yet.

This is the point. The bubble is getting bigger, but about to pop. These people are about to get burned on deals like these.
And, the Midwest is usually the last to get hit by the trend.
 

bunsen82

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Rented for 7 years? That’s lost equity regardless of price and interest credit on taxes.
You may want to work on those math skills. Rent is very effective especially if it is smaller place than what want to ultimately buy. No real estate taxes, renters insurance is less than home insurance, and you are not paying interest. there is very little equity most are getting in their house in the first 10 years on a 30 year loan. I rented for 5 years and built up 115,000 down payment. Paid $700 for 3 bedroom apartment for 3 years. Bought in 2010 just as the real estate market was bottoming out and got $8000 for first time home buyers.
 
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goldmom

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I've read several similar articles about the Florida housing market.

A house just around the corner from me was sold to a flipping group and it’s been on the market 3 weeks. That is a First because every other house in the neighborhood has sold before they could get a sign up.
 

onlyTheObvious

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I'm right in the middle of it now as we're looking at moving and selling our home.

I couldn't believe the amount of home I qualified for by myself! I told them I wasn't on House Hunters and asked if that was a real figure? They assured me it was.

I think Iowa still stays where it is. At this point people are still over bidding on homes from the asking price. Even if that drops a little we're still at asking or a little under.

We'll see what happens. I bought my current home in 2008 (first crash).
It is insane what banks/mortgage companies think people can afford. Sadly, too many listen to them.
 

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