Source: Bankrate —
As the U.S. housing market continues to cool, a growing number of forecasters say homeowners could soon experience significant price declines. These analysts look at the record run-up in home prices during the COVID pandemic and say a drop of 20 percent or more looms in the near future.
“We’re at very, very frothy levels right now,” says James Knightley, chief international economist at ING Bank, the global financial institution. “Prices do tend to overshoot to the downside.”
Knightley isn’t the only analyst to predict a sharp decline in home values coming soon. “For affordabilityto come back to 2020 [levels] at current interest rates, housing prices have to decline more than 40 percent,” says Vitaliy Katsenelson, CEO and chief investment officer at Investment Management Associates.
The housing market boom slows
The real estate market caught fire in the spring of 2020 and continued to blaze through mid-2022. Fueled by record-low mortgage rates and pandemic-induced migration, home values soared. Inventories hit record lows. Bidding wars became common. That mismatch between supply and demand led to skyrocketing prices.
In March 2020, the start of the pandemic in the U.S., the median price of an existing home was $280,700, according to the National Association of Realtors. By June 2022, that number had soared to $413,800, a 47 percent increase — and a new record.
In mid-2022, however, the housing market started cooling. Mortgage rates shot past 7 percent, and home values began to retreat in some markets. Meanwhile, home sales have fallen for eight consecutive months, a trend that indicates values have grown too rich for many Americans.
“Prices have to fall substantially in order to restore equilibrium,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in an analysis in late October. “The supply curve for housing is not flat, so the plunge in demand will drive prices down.”
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