Homes in the Bedford-Stuyvesant neighborhood of Brooklyn, June 15, 2009. (AP Photo/Seth Wenig)
Homes prices are still rising for now, but they are expected to turn negative in the first half of 2023, according to Morgan Stanley analysts.
Owning a home is becoming unaffordable for many would-be buyers at the fastest pace in the history of data tracking, while sales are falling faster than they did during the Great Financial Crisis.
The housing market has cooled after the pandemic-era frenzy of home-buying. Home price increases slowed by the largest amount on record in July 2022 — the fourth straight month of price deceleration — but values are still significantly higher year over year, Yahoo Business reported.
In July 2022, home prices rose 15.8 percent over the same month in 2021, according to the S&P CoreLogic Case-Shiller index. That’s down from June 2022, which showed an 18-percent annual gain.
Price growth is expected slow even more because interest rates have gone up higher, reaching close to 7 percent. However, double-digit annual home price gains are still unaffordable for many would-be buyers, especially among Black people due to rising wealth inequality.
Overall, U.S. homeownership rate surged to 65.5 percent in 2020. But for Black Americans, homeownership (43.4 percent) is lower than in 2010 (44.2 percent) and nearly 30 percentage points less than white Americans (72.1 percent), according to the National Association of Realtors.
Housing affordability could change in 2023 — but not necessarily by much.
“While we do not see a material correction in home prices, we now think that YoY [year-over-year] home price growth will turn negative in the first half of next year before finishing 2023 at -3%,” Morgan Stanley’s James Egan and his U.S. housing research team wrote in a note.
“While this is 7% below where prices are today, it also only brings prices back to January 2022 levels,” which is 32% above where home prices were in March 2020.
Existing-home sales have fallen for the seventh consecutive month through August, according to the National Association of Realtors’ housing affordability index.
“Affordability is deteriorating faster than at any point in our data history,” Egan wrote. “If we assume a 7% mortgage rate, affordability looks materially worse than today. And the pace of its deceleration has already more than doubled compared to almost any time in history.”
Years of underbuilding and low supply meant home prices were high even before the pandemic triggered an exodus from big cities with buyers seeking more space. Many were willing to pay more than the asking price, with multiple offers pushing up property prices.
The lack of inventory of homes on the market is keeping the market fairly competitive, but in some markets, inventory is rising fast.
Some housing economists are forecasting significant declines in home prices in the coming months while others expect prices to continue going up, Money.com reported.
Inventory may have picked up, but it isn’t enough to make home prices drop, said Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors. Housing inventory will remain tight for the next couple of years, so we don’t expect a depreciation of home prices, Evangelou told Money.com.
