The US housing market has gone from fear of missing out to just plain fear.
Prices are falling from peak levels, with expensive West Coast markets recording the steepest declines. Bidding wars are fading and sellers are having to ratchet down expectations.
It should all add up to an opportunity for would-be buyers who have been waiting to gain the upper hand after a years-long market frenzy. Instead, they’re facing the worst affordability in almost four decades.
The abrupt end to the pandemic housing boom, driven by the Federal Reserve’s aggressive interest-rate hikes, is leading to a sense of paralysis in the market — a sign price declines will accelerate. With mortgage borrowing costs at the highest level since 2008, house hunters have gone scarce, priced out or worried about overpaying as America braces for a potential recession. Even big Wall Street buyers are holding fire, waiting for lower values ahead.
“Everyone is coming to the view that prices are going to decline,” said Mark Zandi, chief economist for Moody’s Analytics. “Until that happens, nobody is going to buy.”
The Fed is signaling more rate hikes ahead after its third straight 75-basis-point increase Wednesday, and Chair Jerome Powell warned of a housing correction. Goldman Sachs Group Inc. expects home prices to flatten next year. Zandi is more bearish: He predicts prices nationally will fall 5% to 10% from peak levels without a recession and as much as 15% in a mild recession. Values could crash by 25% in some of the most overheated areas, he said.
Both buyers and sellers are trapped in place. Listings are lingering longer because demand has collapsed. But less supply is coming into the market, with a report this week from Zillow Group Inc. showing that new listings slid almost 23% in August from a year earlier. That’s because homeowners who don’t have to move don’t want to trade cheap rates for higher ones, keeping inventories relatively low.
The result is transactions are tumbling: Sales of previously owned homes fell for a seventh straight month in August, the National Association of Realtors reported Wednesday, reaching the lowest level since the depths of the pandemic in May 2020.
Would-be buyers such as Julie and Edward Soto are stuck. After selling their Rock Hill, South Carolina, house at the end of last year after just two days on the market, they moved about 20 minutes away to Fort Mill, their favorite Charlotte, North Carolina, suburb. But in a market crowded with investors earlier this year, hardly anything was even worth looking at.
Competition has cooled now, but unless a great deal comes their way, they’re planning to stick it out in their rental. With the mortgage-rate swing and the prospects for a deteriorating economy, that’s not a bad place to be, Julie Soto said.
“Our times are so volatile,” she said. “It’s not a time to make a hasty decision.”
Payments on a median-priced US home require 36% of household income, the biggest chunk since 1985, according to Black Knight Inc. based on last week’s rates. In September 2021, when rates were about half as high as today, monthly payments required 22% of the median household income.