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How far will home prices fall and when will they bottom

No question the Housing reset (crash) is well underway. Monthly Prices are dropping at a pace last seen in 2008 during the subprime crisis and right before Lehman failed. The rate of price increases during COVID was unprecedented so this rapid move downwards makes a lot of sense. The driver this time is the rapid increase of mortgage rates. We are getting close to 8% on the 30 year fixed.

This graph shows the recession will last thru 2023 and prices won't hit bottom until 2028. Roughly 30% drop in prices from the peak of Spring 2022. This is on a national level. Places like Boise, Austin, Phoenix will see the hardest hits but the price drops will hit every market. Los Angeles and San Francisco are also seeing drops right now.

The big unknown is if the FED will blink and stop the aggressive move on raising rates OR will it try to support prices by Quantitave Easing policies, specifically going back to being the biggest buyer of Mortgage Backed Securities. I doubt they will do that but you never know.

2 comments

2 Comments

Onikoroshi

Nov 04, 2022

30% decline is kinda the historical stop limit for real estate, no?

how does quantitative easing 'support' prices?

it kinda brings up the question

which is more inflationary: printing money or raising interest rates?

but then, with the US gov being the largest global borrower

isn't that really the largest upward pressure on interest rates, and hence, inflation?

Calvin Coolidge thought so

things that make you go hmmmm:

Bummer dumped $4T into the world economy and nothing happened economically

except for certain offshore accounts

real estate is an engine and there is a basic monthly payment that drives it

raise rates value goes down

lower rates value goes up

the relative payment is the same either way

it never changes despite inflation or interest rate changes

BigBallss

Nov 04, 2022

Replying to

As a QE policy the Fed buying mortgage backed securities puts a downward pressure on interest rates, lower interest rates makes it easier for more people to buy a home creating more demand and thus supporting prices. the Fed increased it’s purchase of MBS during Covid to in excess of $40 billion per month and putting it on its balance sheet. That drove mortgage rates to all time lows and prices of homes skyrocketed at an unprecedented level. Since the Fed announced they would stop buying MBS mortgage rates have jumped Decreasing demand for homes which is forcing price drops.

I dont see raising rates as inflationary , in fact it’s the opposite, it sucks money out of the economy. Lowering rates is inflationary. My comment was that if the Fed blinks on its current policy of raising rates and eliminating the purchase of MBS and reverses course, it will help prop up home prices again. But I doubt that happens since they are committed to bringing down the inflation numbers. Real estate has been driven up by investors not just regular homebuyers who focus on a monthly payment. Almost 30% of homebuyers were investors in the last year And not owner occupying homeowners. So to your point, raise rates prices come down.

im not trying to be a know it all here, usually I’m talking to myself or RWC or Brad, so I certainly welcome other opinions and lines of thinking. I like your post and hope you post some more and it doesn’t have to be about real estate. I make and service private party mortgage loans and play around with stocks too. Java is a big stock investment guy.