Leading economists have warned this week that the Federal Reserve’s interest rate hikes are on the verge of a “coast-to-coast” price correction in the era of the burning epidemic.
Mark Zandi, chief economist at Moody’s Analytics, said his firm expects home prices to sink in key competitive markets that are “very juice” or more valuable. Projected price declines coincide with a huge rise in mortgage lending rates, which has reduced the purchasing power of prospective homeowners.
According to the agency’s analysis, the recession could affect the cities of Phoenix and Tucson, Arizona, and parts of North and South Carolina and Florida. One major city is Boyce, Idaho, which Moody’s has identified as “the most valuable market in the country.”
According to Bloomberg, Jandy warned of a correction in the real estate market while speaking at the bipartisan housing policy summit in Washington DC.
Cheap mortgage rates, a lack of housing inventory, and increased interest during COVID-19 lockdowns have led to steep rises in home prices over the past few years – with the Fed policy tightening and mortgages expected to slow to close at 6%.
While the Fed’s benchmark interest rate does not have a direct impact on mortgages, all forms of credit and borrowing are becoming more expensive in anticipation of tight financial conditions. The central bank is sharply raising rates in an effort to combat inflation, which has reached its highest level in decades.
Rising interest rates “have already led to a slowdown in the housing market,” Lending Tree senior economist Jacob Channel told The Post.
“Fewer people are getting mortgages, homes have been sitting on the market longer and some sellers are cutting prices,” the channel said.
“With that said, we are going to see the housing market get very hot in the 2020s and 2021s, so this current” amendment “is not an unexpected or necessarily bad thing – especially as it gives some buyers a little more breathing room when they are hunting for housing,” the channel added.
According to Freddie Mac data, the 30-year fixed-rate mortgage rate reached 5.81% this week, up from just 3.02% in the same week a year ago.
As mortgage rates soar, demand for loan applications among prospective buyers or homeowners looking to refinance has reached a 22-year low.
So far, rising prices have yet to reflect a major impact on prices.
The National Association of Realtors averaged an average home sale price in May of $ 407,600, up 14.8% from a year ago. However, existing home sales are down 3.4% per month – which is a sign of declining demand.
Larry Botel, a senior real estate consultant with Solomon Partners, said the housing amendment is inevitable and “has already begun to happen.”
“Your average home buyer can’t pay the same amount so prices need to be adjusted,” Botel said. “The same math will benefit the rental market as it continues to be an option for price conscious home buyers.”
The drop in housing prices aligns with the Fed’s plan to bring down prices. Shortly after the Fed raised its benchmark interest rate by three-quarters of a percentage point for the first time since 1994, Fed Chair Jerome Powell acknowledged rapid changes in the housing market.
“If you’re a home buyer, someone or a young person wanting to buy a home, you need a little reset,” Powell said. “We need to get back to a place where supply and demand are back together and inflation is down again and mortgage rates are down again.”
While price declines are likely in major markets, Zandi has reduced the likelihood of widespread declines in housing, similar to what occurred during the subprime mortgage crisis of 2008 – when risky lending practices caused the market to crash. Price reductions are expected to be relatively low.
Zandi noted that available inventory is still historically tight, housing vacancies are at an all-time low at this time, rather than the all-time highs posted during the last recession. Mortgage lending is more stable than it was a decade ago.
“I don’t see the kind of mortgage defaults and distressed sales that require a big drop in real estate values. When you get crashes, when you have a lot of foreclosures and a lot of troubled sales,” says Zandi. “That’s just not going to happen.”