We combed expert opinions to get a feel for the future and current state of the market.
Mortgage rates climbed above 7% this week, reaching the highest level since 2001. It’s been a rocky year for the housing market, which has started to take a beating, with home prices notably dipping in many markets across the country.
Today, there’s limited home inventory, yet falling home prices, which is initially counterintuitive based on the good old supply and demand curve. But significantly higher interest rates have thrown a curve ball, leaving many to wonder: Are we destined for a prolonged housing recession, or are we close to hitting bottom?
We put our ear to the ground, and here’s what we heard.
Sellers will likely sit tight for a bit longer.
Black Knight’s president of data and analytics Ben Graboske said that activity is likely to slow as homeowners have little incentive to list their homes in this climate.
“Right now, prospective sellers are not only coming to grips with falling demand and declining prices due to sharply higher interest rates, but they also have a growing disincentive to give up their own historically low-rate mortgages in this environment. Some may be waiting out the market to see if demand – and prices – return in the spring,” Graboske said.
We’re already in a correction (especially if you are on the left coast) – one that many deem necessary.
The froth has come out of the market as buyers are actually practicing some discipline. Couple that with mortgage rates that are approximately 3x what they were several months ago, and many analysts say that home prices are likely to continue their decline. Comerica Chief Economist Bill Adams said is all part of a needed market correction.
The U.S. is in the “early stages of a large correction in housing activity and likely a more modest correction in prices,” Adams said, predicting single-family home sales will drop 25%. “House price declines will likely be larger in the most unaffordable cities on the West Coast, and smaller in cities that have seen accelerating population growth since the pandemic hit like the Florida metros,” Adams said.
So, in the short-term, buckle in.
Moody’s Analytics Chief Economist Mark Zandi offered a starker assessment, tweeting that Americans should “buckle in” as the economy skirts a recession. In a recent report on the state of the market, he had this to say:
“The housing market is the most interest-rate-sensitive sector of the economy. It’s on the front lines of the fallout from the Fed’s efforts to bring down inflation. There’s going to be a coast-to-coast downturn in the housing market. It’s going to be brutal. No part of the market is immune.”
Mortgage rates could recede in the coming year.
Bankrate’s Chief Financial Analyst Greg McBride said it’s possible that the Fed’s efforts to tamp inflation could ease some of the pressure on the housing market.
“The housing market will be tepid in 2023, with only lukewarm demand and a limited amount of inventory available for sale,” McBride predicts. That said, “mortgage rates could pull back meaningfully next year if inflation pressures ease.”