The U.S. housing market — which not too long ago roared to record highs for home prices — continued to cool in September. Average home prices fell for the third straight month, according to the latest S&P CoreLogic Case-Shiller index, and at least one analyst warned of a coming “collapse.”
The U.S. National Index, released on Tuesday, posted a month-over-month decline of -0.8% in September after seasonal adjustments. The 10-City and 20-City composites both logged decreases of -1.2%, and all 20 cities reported declines before and after seasonal adjustments.
“As has been the case for the past several months, our September 2022 report reflects short-term declines and medium-term deceleration in housing prices across the U.S.,” Craig J. Lazzara, managing director at S&P DJI, said in a press release. “As the Federal Reserve continues to move interest rates higher, mortgage financing continues to be more expensive and housing becomes less affordable. Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to weaken.”
That’s a benign forecast compared to what others have been saying. As Axios reported, existing home sales have fallen for nine straight months and the supply of single-family homes is growing. With mortgage rates nearing 7% — their highest point in 20 years, according to the St. Louis Fed — some experts warn of a major housing slowdown in coming months.
“In one line: Collapse in prices is coming,” Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, wrote in a recent note.
Pantheon projects that existing home prices will eventually decline about 20% from their June 2022 peak of roughly $414,000. Goldman Sachs analysts expect a softer landing, projecting that home prices will dip about 4% in 2023 as “unsustainable levels of housing affordability” continue to weigh on demand.
Even with the recent monthly declines, housing prices are still historically high. On a year-over-year basis, the U.S. National Home Price NSA Index reported a 10.6% gain in September, down from 12.9% the previous month.
Meanwhile, a separate report from the Federal Housing Finance Agency found that home prices ticked up 0.1% on a monthly basis in September after falling 0.7% in August, CNBC reported. In the 12 months through September, prices climbed 11% after rising 12% in August.
The fact that home prices haven’t already collapsed in the face of numerous headwinds has some analysts downplaying the threat of a coming housing apocalypse similar to the one that occurred 15 years ago.
In an email to Forbes, Comerica Bank Chief Economist Bill Adams said that “a mid-2000s style blowup seems quite unlikely.” He pointed to the fact that mortgage underwriting standards have become much stricter since the Great Recession, and most homeowners have lots of equity in their homes and stronger balance sheets.
“Even so, the continued pullback in the housing and commercial real estate markets is going to be a major headwind to the economy, likely holding real GDP growth to near zero in 2023 and leading to a moderate increase in the unemployment rate from its current very low level,” Adams added.
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